The Unlikley Regulator

Since the Citizens United ruling in January 2010, it has appeared that the U.S. Supreme Court was doing everything possible to increase the dominion of corporations. Yet in its astonishing ruling on the Affordable Care Act (ACA), the Court, among other things, affirms the right of the government to put far-reaching restrictions on one of the country’s most powerful industries.

Even more remarkable is that the majority decision was written by Chief Justice John Roberts, a former corporate lawyer thought to be firmly in the anti-regulatory camp.

What made the healthcare case so unusual is that, strictly speaking, none of the parties were overtly opposing the provisions of the ACA regulating the heinous practices of the private insurance industry, such as discriminatory pricing, denial of coverage to those with “pre-existing conditions” and cancellation of coverage after a subscriber gets seriously ill. Both the oral arguments and the written opinions were filled with pro-regulation comments by normally laissez-faire-minded Justices.

Opponents of the law chose instead to focus their attack on the constitutionality of the individual mandate, which was at the heart of the deal the Obama Administration and Congressional Democrats made with the insurance industry under which the companies agreed not to fight the regulations in exchange for which they were guaranteed millions of new compulsory customers paying subsidized premiums.

Thanks to the defection of the Chief Justice based on a narrow interpretation of the mandate, the stratagem of the anti-healthcare reform camp turned out to be a colossal miscalculation. It also looks like the insurance companies have been snookered about the extent to which they will benefit from the law.

It will be of some consolation to conservatives that the Roberts opinion contains a strident rejection of the idea that Congress was justified in imposing the individual mandate through its constitutional power to regulate interstate commerce. The Chief Justice devotes many pages of his decision to a recitation of the argument that the mandate was in this sense an overreach, in the course of which he even reprises the broccoli analogy used by Justice Scalia during the hearings on the case.

Yet he then pivots and embraces, along with the Court’s four liberal justices, the secondary argument that the mandate was justified as an exercise of the taxing power of Congress, the tax being the financial penalties contained in the ACA for those without coverage who refuse to purchase individual policies.

What’s interesting is that in order to depict the penalties as a legitimate tax, Roberts has to argue that they are not overly punitive. In doing so, he writes that “for most Americans the amount due will be far less than the price of insur­ance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance.”

Roberts is thus highlighting one of the rarely discussed features of the ACA’s individual mandate: the penalties for disobeying it are far from draconian. Overheated rhetoric by the Right notwithstanding, no one will ever be thrown in jail for not having health coverage, nor will the penalties drive anyone into penury. In fact, it is not clear that the requirement will ever be enforced to any significant extent.

Moreover, any penalties that are collected will go to the Treasury, not to the private insurers missing out on premium payments from scofflaws. If enough of the defiantly uninsured realize the relatively low risks of non-compliance, the individual mandate may not create as many new customers as the insurance industry had hoped.

Of course, the ACA will create new customers from among the ranks of the uninsured who want coverage but have not been able to afford it without the subsidies the law will create. But many of these will be families who will make significant use of the coverage, as opposed to the young invincibles who never go to the doctor. In other words, the industry will end up with more of the less profitable end of the market.

Reading the Roberts opinion, one gets the impression that he was grasping for a way to uphold the ACA and rise above the unalloyed conservative partisanship that has tainted the recent history of the Court. While history may look kindly on his decision, in the shorter term he is bound to become a whipping boy for disappointed opponents of healthcare reform. Back in the 1960s rightwing fringe groups campaigned to have then-Chief Justice Earl Warren impeached for his supposedly pro-Communist rulings. Calls to “Impeach John Roberts” are already emerging from Red State America.

Whatever the Roberts legacy turns out to be, the bigger question is what will become of the U.S. healthcare system. It is encouraging that the most egregious insurance company behavior will be outlawed, but who knows what other tricks the industry will devise to torment its customers. The uproar over the ACA does not change the fact that the only real solution is to take the profit out of health coverage.

Corporate Capture in Rio and at Home

The 50,000-person United Nations conference on sustainable development in Rio de Janeiro is bound to be followed by recriminations about what the nations of the world failed to accomplish. Perhaps the real story is what the planet’s giant corporations did accomplish in Rio — to advance their own interests.

Rio +20 is following what is now a familiar pattern in which governments drag their feet while major companies try to give the impression that they are the vanguard of environmental reform. The extent to which the United Nations — whose Centre on Transnational Corporations was once somewhat critical of big business — has embraced this dynamic can be seen on the website Business.UN.org, whose tagline is “Partnering for a Better World.” Corporations can post their sustainability goals on the site under the misleading category of Commitments. Whether the various goals are timid or ambitious, they are all, of course, voluntary in nature and thus unenforceable by the UN or any other body.

More is at work here than simple image-burnishing by many of the planet’s biggest polluters. According to a report issued for Rio +20 by Friends of the Earth International, large corporations and business associations have in effect hijacked the UN’s policymaking process: “There is increased business influence over the positions of national governments in multilateral negotiations; business representatives dominate certain UN discussion spaces and some UN bodies; business groups are given a privileged advisory role.”

“An even greater cause of concern,” the FOEI report goes on to say, “is the emergence of an ideology among some UN agencies and staff that what is good for business is good for society. This is reflected in a shift away from policies and measures designed to address the role of business in creating many of the problems that we face, towards policies that aim to define these problems in terms dictated by the corporate sector, meeting their needs without tackling the underlying causes of the multiple crises.”

All of this constitutes what FOEI calls “corporate capture” of the UN, a phrase that echoes the term “regulatory capture” used to describe what happens when the interests of corporations come to dominate the proceedings of government oversight agencies. FOEI has issued a statement with other NGOs decrying the excessive corporate influence over UN deliberations that has been endorsed by more than 400 groups from around the world.

It’s heartening that so many groups are willing to speak out, but it’s discouraging to realize that the same criticisms have been made for more than a decade, to little avail. At the time of the 2002 UN earth summit in Johannesburg, CorpWatch issued a report called Greenwash +10 that was already warning about the risks of the UN’s increasing commitment to corporate partnerships. It noted that one of those partnerships, Global Compact, claimed to be promoting business support for UN sustainability goals yet included among its members companies such as mining giant Rio Tinto with atrocious environmental records.

Rio Tinto is one of the companies singled out in the new FOEI report for continuing to engage in the same kind of hypocrisy. The mining company is also one of the main targets (along with BP and Dow Chemical) of the Greenwash Gold campaign, which  accuses the companies of covering up environmental destruction “while pretending to be a good corporate citizen by sponsoring the Olympic games” being held this summer in London.

Undue corporate influence over climate policy is also the theme of a recent report by the Union of Concerned Scientists.  While acknowledging that some U.S. companies have taken “consistent and laudable” actions in support of science-based climate reforms, it finds that others have worked aggressively to undermine such progress.

Most interesting is its finding that some large corporations have taken contradictory positions depending on the circumstances. For example, some companies are found to make legitimate statements of concern over climate change on their websites and in their filings with the Securities and Exchange Commission while misrepresenting the state of climate science in their comments submitted to Environmental Protection Agency proceedings. Companies that fall into the contradictory category — such as Alcoa, ConocoPhillips and General Electric — are said to be standing in the way of meaningful change.

Whatever positions corporations take, there will always be tension between their interests and the common good. The fact that those two goals may occasionally coincide does not justify the outsized role that corporations now have in policymaking at both the national and international levels. Progress on climate change and many other fronts will be a lot easier when we are free from corporate capture in all its forms.

Patriotism is for the Little People

ING’s “Your Number” ad campaign touts the financial services company’s ability to help customers figure out how much they need to save for retirement.  We’ve just learned that ING’s own number is $619 million, the amount it had to pay to settle charges of having violated federal law by systematically concealing its prohibited transactions with Iran and Cuba.

The penalty agreed to by Netherlands-based ING is the largest in a series of cases in which major banks have been accused of doing business with countries targeted by U.S. economic sanctions. One of those banks is JPMorgan Chase, whose CEO Jamie Dimon just appeared before Congress to explain billions of dollars in trading losses and was treated with deference by most members of the Senate Banking Committee. It was just ten months ago that JPMorgan paid $88 million to resolve civil charges related to thousands of prohibited funds transfers for Iranian and Cuban parties.

JPMorgan got off a lot cheaper than some European banks, which were hit with criminal as well as civil charges. Apart from ING, Lloyds Banking Group paid $350 million in 2009, Credit Suisse paid $536 million that same year, and Barclays paid $298 million in 2010. Yet even those amounts did not cause much pain for the large institutions. In fact, they were undoubtedly happy to pay the penalties as part of arrangements that allowed them to avoid more serious legal consequences. They all were granted deferred prosecution deals under which they avoided a formal criminal conviction by vowing to clean up their act. A frustrated federal judge in the Barclays case called the settlement a “sweetheart deal” but approved it nonetheless.

The most comprehensive U.S. economic sanctions currently in force are aimed at Cuba, Iran, Burma/Myanmar, Sudan and Syria. More limited sanctions regimes apply to various other countries such as North Korea and Somalia. The Cuban sanctions, which date back to 1962, were adopted under the rubric of the World War I-era Trading with the Enemy Act. More recent restrictions are based primarily on the International Emergency Economic Powers Act of 1976.

Starting in the George W. Bush Administration, attention was directed from countries as a whole to designated individuals and organizations from those countries and others deemed to be acting against U.S. interests, including alleged terrorists and terrorist financiers. These parties are included in a list of Specially Designated Nationals and Blocked Persons maintained by the Treasury Department’s Office of Foreign Asset Controls (OFAC), which enforces the civil provisions of the sanctions laws.

Violations of these laws did not begin with the recent bank cases. In 2002 the Corporate Crime Reporter obtained documents from OFAC revealing previously unreported enforcement actions against companies such as Boeing, Citigroup, General Electric, Merrill Lynch and Morgan Stanley. The agency had brought 115 cases over a four-year period. Over the past decade, OFAC has been more open about its enforcement actions, but fewer U.S. companies are being targeted.

The reason is not that American firms have gotten more ethical, but rather because many of them have in effect been allowed to sidestep the law. In December 2010 the New York Times revealed that the Treasury Department has been granting licenses to many large companies to sell goods to Iran under an exceedingly broad interpretation of the agricultural and humanitarian exemptions. Among the products that sneaked in under those loopholes were cigarettes and chewing gum.

Whatever one thinks of the wisdom or efficacy of economic sanctions, the way in which large companies have related to them says a lot about corporate power. It’s clear that, whenever possible, they will put their commercial interests ahead of strict compliance with the law and adherence to the foreign policy objectives of their own government and those of its allies. When individuals collaborate with enemy nations they risk indefinite detention. When corporations do so, they receive affordable fines while avoiding serious legal consequences. Even admitted violators such as ING, Credit Suisse, Lloyds and Barclays do not end up on OFAC’s blacklist.

The late real estate tycoon Leona Helmsley once said that paying taxes is only for the little people; apparently, patriotism falls into the same category.

The Collapse of Wal-Mart’s Social Responsibility Charade

For the past eight years, Wal-Mart has pursued an image campaign apparently inspired by the Marx Brothers line: “Who you gonna believe, me or your own eyes?”

Despite the preponderance of evidence of its unenlightened practices, the company has tried to give the impression that it is really a model corporate citizen. Recent events suggest that the giant retailer’s social responsibility charade is now crumbling.

Through all of its scandals and controversies over the years, Wal-Mart could at least count on the support of its institutional shareholders, which for a long time turned a blind eye to the company’s transgressions and focused on its growth. Now even that is changing. The recently released results of voting at the company’s annual meeting indicate unprecedented discontent with its leadership. Not counting the large bloc of shares controlled by descendants of founder Sam Walton, more than 30 percent of the votes were cast against CEO Mike Duke, board chair Rob Walton and former CEO and board member Lee Scott. In the past, Wal-Mart board members typically had approval rates close to 100 percent.

The high degree of no-confidence this time around is largely attributable to the fallout from an 8,000-word exposé by New York Times alleging that high-level executives at the company quashed an internal investigation of foreign bribery. Before the annual meeting, the California State Teachers’ Retirement System filed a lawsuit against current and former Wal-Mart executives and board members for breach of their fiduciary duties in connection with the bribery scandal.

That scandal also appears to have played a significant role in Wal-Mart’s decision to cave in to calls to suspend its membership in the American Legislative Exchange Council, which is under siege for its role in promoting “stand your ground” laws such as the one in Florida linked to the shooting of Trayvon Martin. In the past, Wal-Mart, long a stalwart member of ALEC, would have ignored pressure of the kind being exerted by the anti-ALEC campaign.

By all rights, the disintegration of Wal-Mart’s responsibility image should have come from its retrograde labor and employment practices, which were the main reason for the public relations effort but which didn’t substantially change during the campaign. The company has never strayed from its uncompromising opposition to unions (except for toothless ones in China). The Organization United for Respect at Walmart is not a conventional union-organizing effort, yet the company recently fired several activists in the group in an apparent act of intimidation.

In its 1.4 million-employee U.S. retail operations, Wal-Mart has maintained a low-road approach of meager wages, inadequate benefits and overuse of part-timers. Workers at its more than 100 distribution centers had enjoyed somewhat better conditions, but it appears that is no longer the case. A new report from the National Employment Law Project finds that the company is increasingly using logistics subcontractors and temp agencies that engage in rampant wage-and-hour abuses and other labor-law violations.

In the latest in a long line of its own fair labor standards cases, Wal-Mart was recently forced by the U.S. Labor Department to pay $5.3 million in back pay, penalties and damages for violating overtime rules. Although the U.S. Supreme Court came to Wal-Mart’s rescue last year by blocking a massive class-action sex discrimination case, several non-class actions have been brought in recent months making the same allegations on behalf of thousands of women.

One area in which Wal-Mart believes it has attained a measure of legitimacy is environmental policy. It has succeeded in winning over some green groups, which cannot resist the temptation of working with such a mammoth company to change industry standards.

Yet the funny thing about Wal-Mart’s green initiatives is that most of them involve changes that the retailer is requiring from its suppliers, who are expected to bear the costs of altering their products and their packaging. This is consistent with Wal-Mart’s longstanding practice of forcing suppliers to cut their wholesale prices to the bone. When Wal-Mart does take steps on its own, such as in reducing energy usage in its facilities, those reforms are ones that reduce its operating costs and thus add to its bottom line.

Even if you believe it is okay for Wal-Mart to boost its profits while pressing suppliers to be more environmentally responsible, it’s important to remember that many of those suppliers are in countries such as China where oversight is difficult. A recent investigative report in Mother Jones found that Wal-Mart’s monitoring of Chinese plants left a lot to be desired and that this is causing frustration among some of the environmentalists who have been working with the company.

A report by Stacy Mitchell of the Institute for Local Self-Reliance finds that Wal-Mart’s domestic green initiatives, such as using more renewable energy sources, are also faltering, while the company ignores the detrimental environmental impacts of its land use practices. All this is compounded, Mitchell notes, by Wal-Mart’s extensive political contributions to candidates who are global warming deniers or otherwise have poor voting records on the environment.

The demise of  Wal-Mart’s phony social responsibility initiative poses a fascinating question: Can the company return to its old critics-be-damned stance, or will it finally have to make some genuine reforms in the way it does business?

ALEC Staggers But Will it Fall?

Wal-Mart’s decision to drop its membership in the American Legislative Exchange Council is a milestone in the remarkable effort to drive a wedge between ALEC and the large corporations that have used the organization to promote their self-serving policy agenda at the state level.

At least 18 companies are reported to have cuts ties to ALEC in the face of a pressure campaign spearheaded by groups such as Color of Change, Common Cause, People for the American Way and the Center for Media and Democracy.

The campaign—which has also prevailed against the likes of Amazon.com, Coca-Cola, Kraft Foods, McDonald’s and Procter & Gamble—is already one of the most successful corporate accountability initiatives ever undertaken, and more wins are likely to occur. Yet there are also high hurdles to overcome.

Those companies that have succumbed to the anti-ALEC pressure are pretty much all consumer products firms that were concerned about the possibility of boycotts on the part of customers outraged at ALEC’s role in promoting “stand your ground” laws like the one in Florida at the center of the controversy over the shooting of Trayvon Martin.

A decisive win against ALEC will require splitting off a much larger portion of ALEC’s sizeable corporate membership, including companies that are not fazed by consumer unrest. Quite a few firms of this sort are represented on ALEC’s Private Enterprise Board, whose membership roll reads like a rogue’s gallery of corporate irresponsibility.

The pharmaceutical industry, which has fought countless battles over pricing and safety and has been hit with billions of dollars in fines for illegal marketing practices, has several representatives on the board, including the senior vice president of its trade association PhRMA and officials from Bayer, GlaxoSmithKline and Pfizer.

Big tobacco, another battle-hardened industry, is represented by officials from Altria and Reynolds American. The national chair of the board, W. Preston Baldwin, is listed as being affiliated with the corporate strategy consulting firm Centerpoint360, but he used to be an executive with the chewing tobacco producer UST (now owned by Altria).

Also represented on the board are two leading villains of the natural resources sector—petroleum behemoth and climate-change denier ExxonMobil and Peabody Energy, the largest private-sector coal producer in the world. For good measure, the board also includes a representative of Koch Industries, which is not only heavily involved in petrochemicals but is also, through the Koch Brothers, one of the primary backers of groups promoting the same kind of rightwing agenda pushed by ALEC.

Apart from those on the board, ALEC’s membership list is believed to still include corporate bad actors such as ASARCO, Bank of America, BP America, Caterpillar, Chevron, Comcast, Corrections Corporation of America, Dow Chemical, Freeport-McMoRan Copper & Gold, Monsanto, Northrop Grumman, Shell Oil, T-Mobile and Verizon.

In other words, the effort to cleave off ALEC’s corporate members will increasingly mean taking on companies that are not only notorious but which have a long track record of fending off challenges from labor, environmental and other progressive forces.

It’s true that Wal-Mart, whose vice president for public affairs was serving as secretary on the ALEC board until the company’s departure, is also part of that category. Yet Wal-Mart has been less combative of late, due in large part to the fallout from a foreign bribery scandal and its ongoing effort to give the impression of being an environmental leader. And it is a consumer-oriented company.

So what will it take to knock out these other ALEC loyalists? There’s no easy answer, but it may be necessary for the campaign to treat the relationship of those firms to ALEC in a different way. Until now, the campaign has focused on making ALEC seem like a rogue organization that has adopted positions that diverge from the interests of the target companies. The online petition being circulated by Common Cause states:

Stop risking your company’s reputation. Your association with the American Legislative Exchange Council aligns you and your stockholders with a partisan drive to deny millions of Americans their right to vote, an attack on public schools, and the proliferation of “Stand Your Ground” laws that promote vigilantism.

Your company probably joined ALEC to get help in lobbying for legislation that impacts your business. But ALEC’s agenda these days puts the pursuit of private profit ahead of the public interest. It pulls business leaders like you into a radical ideological crusade involving issues that have nothing to do with your company.

Yet many of the companies listed above continue to support ALEC precisely because it is pursuing a radical ideological crusade that does have something to do with their interests.  The anti-ALEC campaign will have to put more emphasis on the core issues that attract companies to the organization: business tax reduction, deregulation, privatization and other “fundamental principles of free-market enterprise, limited government, and federalism at the state level,” as the ALEC mission statement puts it.

ALEC’s identification with “stand your ground” and voter suppression opened an extraordinary opportunity to put the organization on the defensive, but in the end it is this broader corporate agenda that has to be confronted.

Sins of the Other Bain

Those seeking to defend Mitt Romney’s track record at Bain Capital argue that private equity is a special kind of business. The firms that are taken over, they tell us, are often in bad shape, and restoring them to health may involve some painful surgery.

Turnaround situations, they insist, cannot be judged by customary job creation benchmarks.

The problem with this claim is that the harsh remedies applied at supposedly sick companies have often been used at healthier ones as well—and this practice is exemplified by the career of none other than Mitt Romney. Prior to his tenure at Bain Capital, Romney spent a decade as a management consultant, mostly at the firm of Bain & Co., which launched Bain Capital.

When the young Romney joined Bain & Co. in the late 1970s, management consulting was starting to be regarded with the same kind of mistrust today directed toward private equity and hedge funds. Sure, the consultants were celebrated by some as wizards of the corporate world, yet their magic frequently involved getting large companies to embark on radical restructuring that resulted in the elimination of many jobs and the multiplication of the workload of those workers who remained. Although their advice was frequently dressed up in strategic jargon, firms such as McKinsey were essentially perpetuating Frederick Taylor’s time-and-motion studies of the 1920s.

Bringing in an outside consulting firm enabled corporate managers to carry out drastic measures that would otherwise face insurmountable internal resistance. And the results could be disastrous, as seen in the retrenchment plan that Booz Allen cooked up for supermarket chain A&P in the 1970s.

Consultants fueled the manic business restructuring of the 1980s by making corporate executives think that joining in was a matter of survival. “If a chief executive officer isn’t thinking of restructuring, he’s not doing his job,” Jim Farley of Booz Allen insisted to the Wall Street Journal in 1985.

Bain & Co. was not satisfied with simply giving aggressive advice to companies; the firm wanted to be involved in implementing the changes. That could lead to trouble. During the 1980s, when Bain had some 60 of its staffers in its London office working on the Guinness account, it became embroiled in a scandal over illegal stock manipulation by the brewer during the takeover of a rival beverage company.

The creation of Bain Capital was a vehicle by which Bain’s principals could not only help implement restructurings but also profit from them in ways that were even more lucrative than consulting fees. Romney, who was tapped to run the offshoot, admitted to a Forbes interviewer (11/30/87) that his outfit worked very closely with Bain & Co., often hiring partners from the consulting firm to run the companies it was buying. Bain Capital also did deals involving companies that had been clients of Bain & Co. One of Romney’s first big scores involved the buyout of Accuride, a truck wheel unit of Firestone, which had been a long-time user of Bain’s consulting services.

Romney’s ties to Bain & Co. remained so close that when the consulting firm ran into financial problems of its own—exacerbated by a huge cash-out by founder Bill Bain and other senior executives—Romney was called in to complete a rescue that included the internal use of downsizing and restructuring measures it had so often executed at client firms.

The continuity between Romney’s work at Bain & Co. and his slash-and-burn activities at Bain Capital is suggested by the track record of his clients during his consulting years, which at Bain lasted from 1977 to 1984. It’s been reported that those clients included Monsanto, Corning, Burlington Industries and Outboard Marine.

Using the handy Fortune 500 online archive, I tracked the total headcount at the four companies during Romney’s Bain & Co. years. Each one of them had a dramatic drop: 14 percent at Monsanto, 17 percent at Corning, 25 percent at Burlington Industries and 33 percent at Outboard Marine. Together, they shed more than 36,000 workers from the end of 1976 to the end of 1984. Undoubtedly, there were other factors at work, but Romney and his Bain & Co. colleagues must have played a significant role in bringing about that job destruction.

Private equity can be a ruthless business, but its methods are not entirely unknown to the rest of the corporate world, especially when management consultants get into the act. Mitt Romney, whose business experience is supposed to qualify him for the White House, should answer for his actions at both Bains.

Banking on Boeing

Recent passage of a piece of federal legislation on a broadly bipartisan basis was considered unusual enough for the Washington Post to treat it as front-page news. Yet what was most significant about the measure to extend the life of the U.S. Export-Import Bank was not its bipartisanship but rather the way it revealed a profound confusion on the part of both major political parties about how the federal government should relate to big business.

The fate of the Ex-Im Bank, which for decades has served mainly as a tool to promote exports by large U.S. manufacturers, had come into question after it was targeted by tea party types in Congress. While conservatives are usually inclined to do everything possible (short of bailouts) to assist corporations, many had come to accept the view that the Ex-Im Bank was an unjustified form of government intervention. Utah Senator Mike Lee denounced the bank’s operations as “corporate welfare that distorts the market and feeds crony capitalism.”

Supposedly anti-corporate Congressional Democrats joined with the likes of the U.S. Chamber of Commerce and the National Association of Manufacturers to defend the Ex-Im Bank. House Democratic Leader Nancy Pelosi said that Congress had to send “a strong signal to American businesses: we will help them get their products into markets abroad, and in doing so, we will create jobs here at home.” Independent Vermont Senator Bernie Sanders, on the other hand, maintained his long-time opposition to the bank.

In the end, the corporatist wings of the two major parties prevailed, but not before the Ex-Im Bank had been pummeled by conservatives who had begun denouncing the institution as “Boeing’s Bank.” They have a valid point. A huge portion of the agency’s resources have long been devoted to that one company. If you look at the list of loans and long-term guarantees in the bank’s annual report, Boeing’s name shows up repeatedly—more than 40 times last year, far more than any other company. The company got assistance in its deals to sell planes to airlines in more than 20 countries such as Angola, Indonesia and Tajikistan.

The right has assumed the role of Ex-Im Bank critic once occupied by the left. Back in 1974 the anti-imperialist magazine NACLA’s Latin America & Empire Report published a critique of the bank that concluded with the following statement: “Confronted by a world increasingly hostile to U.S. imperialism, strategists will employ the credit levers of the Eximbank in the coming years to punish countries that nationalize American corporations, and to reward those nations that cater to U.S. commercial interests.”

Eliminating Ex-Im Bank’s credit assistance was high on the list of programs proposed for elimination in the Aid for Dependent Corporations reports issued by the Ralph Nader group Essential Information in the 1990s. By that point libertarian groups such as the Cato Institute were also speaking out against the bank and other forms of corporate welfare. Also lining up against the bank were environmental groups concerned about its role—along with that of the Overseas Private Investment Corporation—in enabling hazardous projects such as the Three Gorges Dam in China.

The contemporary right’s misgivings about the Ex-Im Bank have nothing to do, of course, with anti-imperialism or environmental protection—and everything to do with absolutist ideas about the role of government. The problem these conservatives face is that the actual behavior of large corporations frequently bears little resemblance to pure free-market principles.

Boeing, for instance, is not only perfectly willing to accept federal export assistance but has also sought and obtained billions of dollars in state and local economic development subsidies for its U.S. plants. Its decision to locate a Dreamliner production facility in South Carolina garnered a subsidy package estimated to be worth more than $900 million. The company’s hold over the Palmetto State is so strong that it drove a wedge between South Carolina’s two paleo-conservative U.S. Senators during the Ex-Im debate, with Jim DeMint holding to laissez-faire principles while Lindsey Graham warned that eliminating the bank would jeopardize aerospace jobs.

When it comes to labor relations issues, Boeing suddenly turns into an ardent opponent of government. When the National Labor Relations Board took seriously an allegation by the Machinists that the company’s investment in South Carolina was a form of anti-union retaliation, Boeing screamed bloody murder and got support from all of the state’s leading politicians—and most of the corporate world.

It will be interesting to see how conservatives handle this tension between lionizing large corporations and demonizing them. The outcome of the Ex-Im debate suggests that, for now, corporatists retain the upper hand across the mainstream political spectrum.

Will Big Pharma Remain Above the Law?

The recent announcement that a corporation agreed to pay $1.6 billion to settle regulatory violations would normally be considered significant news, but because the company involved was a drugmaker there was not much of a stir. That’s because Abbott Laboratories is only the latest in a series of pharmaceutical producers to pay nine- and ten-figure amounts to settle charges that they engaged in illegal marketing practices.

Abbott’s deal with federal and state prosecutors involves Depakote, which was approved by the Food and Drug Administration to treat seizures but which Abbott was charged with promoting for unauthorized uses such as schizophrenia and for controlling agitation in elderly dementia patients. The company admitted that for eight years it maintained a specialized sales force to market Depakote to nursing homes for the latter unauthorized use. In other words, it systematically violated FDA rules and encouraged doctors and nursing homes to use the drug in potentially unsafe ways.

Abbott follows in the footsteps of other industry violators:

  • In November 2011 GlaxoSmithKline agreed to pay $3 billion to settle various federal investigations, including one involving the illegal marketing of its diabetes drug Avandia.
  • In September 2010 Novartis agreed to pay $422 million to settle charges that it had illegally marketed its anti-seizure medication Trileptal and five other drugs.
  • In April 2010 AstraZeneca agreed to pay $520 million to settle charges relating to the marketing of its schizophrenia drug Seroquel.
  • In September 2009 Pfizer agreed to pay $2.3 billion to settle charges stemming from the illegal promotion of its anti-inflammatory drug Bextra prior to its being taken off the market entirely because of concerns that it was unsafe for any use.
  • In January 2009 Eli Lilly agreed the pay $1.4 billion—then the largest individual corporate criminal fine in the history of the U.S. Justice Department—for illegal marketing of its anti-psychotic drug Zyprexa.

The wave of off-label marketing settlements began in 2004, when Pfizer agreed to pay $430 million to resolve criminal and civil charges brought against Warner-Lambert (which Pfizer had acquired four years earlier) for providing financial inducements and otherwise encouraging doctors to prescribe its epilepsy drug Neurontin for other unapproved uses.

Soon just about every drugmaker of significance ended up reaching one of these agreements with prosecutors and shelled out what appeared to be hefty penalties. In fact, the amounts were modest in comparison to the potential revenue the companies could rake in by selling the drugs for uses far beyond what the FDA review process had deemed safe. A 2009 investigation by David Evans of Bloomberg noted that the $2.3 billion penalty Pfizer paid in connection with Bextra was only 14 percent of the $16.8 billion in revenue it had enjoyed from that drug over the previous seven years.

The company’s 2004 settlement should have been a deterrent against further off-label marketing, but, according to Bloomberg, Pfizer went right on doing it. Seeking maximum sales, regardless of restrictions set by the FDA, was an ingrained part of the company’s modus operandi. When the 2009 settlement was announced, John Kopchinski, a former Pfizer sales rep turned whistleblower, was quoted as saying: “The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player.”

Compared to other forms of corporate misconduct, such as securities violations, the drug companies are much more likely to have to admit to criminal violations in the off-label marketing cases. And the penalties are far larger than those imposed for most environmental and labor violations.

Yet these seemingly harsher enforcement practices appear not to have been very effective in putting an end to the illegal activity. In fact, the willingness of the drug industry to flout the drug safety laws raises serious questions about the effectiveness of FDA regulations and the federal criminal justice system in general. If a group of companies know that they can repeatedly break the rules and face consequences that fall far short of the potential gains from the illegal behavior, enforcement has little meaning.

What makes the situation even more outrageous is that off-label market is just one of numerous ways that the drug industry regularly violates the law—whether by defrauding federal programs such as Medicare or by covering up safety risks related to the approved uses of certain drugs.

The one thing that makes drug industry executives a bit nervous is that federal prosecutors have begun to show interest in reviving what is known as the responsible corporate officer doctrine, a provision of U.S. food and drug laws that could be used to hold executives personally and criminally responsible for violations. So far, the doctrine has been applied to only a few small fish. But if Big Pharma CEOs start appearing in perp walks, the industry may finally realize it is not above the law.

Will Discredited Murdoch Get His U.S. Comeuppance?

The recently released UK parliamentary report on the phone hacking scandal involving News Corporation is destined to become a classic exposition of corporate misconduct.

Its authors appear to have exhausted their thesaurus in coming up with various ways of accusing the company and its top executives, including CEO Rupert Murdoch, of deceit. The company’s long-time claim that the hacking was the work of a single “rogue reporter” is described as “false” (p.7) and “no longer [having] any shred of credibility” (p.67). Various assertions made by the company are said to have been “proven to be untrue” (p.9). Company officials are portrayed as having acted “to perpetuate a falsehood” (p.84), “failing to release to the Committee documents that would have helped to expose the truth” (p.14) and as having “repeatedly stonewalled, obfuscated and misled” (p.68).

The report does not come out and directly call Rupert Murdoch a dirty rotten liar, but it makes the same point in a more biting way when it says of the media mogul’s official testimony: “Rupert Murdoch has demonstrated excellent powers of recall and grasp of detail, when it has suited him” (p.68).

In language rare for a government document to use about a powerful corporation and its top executive, the report declares:

On the basis of the facts and evidence before the Committee, we conclude that, if at all relevant times Rupert Murdoch did not take steps to become fully informed about phone-hacking, he turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications. This culture, we consider, permeated from the top throughout the organisation and speaks volumes about the lack of effective corporate governance at News Corporation and News International. We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company (p.70).

As satisfying as this statement is to read, my primary reaction is: what took so long? Murdoch has been the CEO of News Corp. for more than 30 years, and during that time he has done untold damage to the integrity and quality of the media industry worldwide. The phone hacking scandal was not an aberration in the history of the company or the career of its leader.

Murdoch has been unfit to lead at least since the 1970s, when he began acquiring major publications in the United Kingdom and the United States and infusing them with an insidious combination of sensationalism and Neanderthal politics. In the UK he also declared war on the newspaper unions.

Once he was firmly established as a print baron, Murdoch moved into broadcasting and film through the acquisition of Metromedia’s U.S. TV stations and the Twentieth Century-Fox movie studio. In the process he ran roughshod over federal newspaper/broadcasting cross-ownership regulations and played a major role in the decision by the feds to undermine those rules. Murdoch used his U.S. broadcasting empire not just to make money but to exercise a toxic influence on political discourse, especially through the Fox News Channel launched in 1996.

For Murdoch there has never been a clear dividing line between business and politics. He’s used his properties to promote his political views, and he’s used his political connections—even in a place such as China—to advance his business interests.

This practice has extended into the realm of book publishing, in which Murdoch has played a major role since the acquisition of HarperCollins (previously Harper & Row) in 1987. Murdoch has been accused of using Harper to curry favor with key political figures via lavish book deals. The most notorious of these cases involved none other than Newt Gingrich, who was revealed in 1994 to have received a $4.5 million advance on a two-book deal at a time when he was Speaker of the House and thus in a position to influence legislation to the benefit of News Corp.

It came out that Gingrich met with Murdoch personally shortly before signing the deal was struck. Although Gingrich called the criticism “grotesque and disgusting,” the controversy forced him to forgo the advance. HarperCollins also offered generous advances to other public figures such as Supreme Court Justice Clarence Thomas.

While the legal troubles of Murdoch and News Corp. continue in the UK, the question is whether there will be consequences on this side of the Atlantic, where the company is headquartered. The bribery aspects of the phone hacking call out for prosecution under the Foreign Corrupt Practices Act, and there has been speculation about such as investigation since last summer.

For too long, Murdoch has sidestepped U.S. law to build his empire, even going so far as to become an American citizen to get around restrictions on foreign media ownership. There would a delicious irony if what finally brought his comeuppance is misbehavior outside the country.

Wal-Mart and Watergate

Wal-Mart has been probably been accused of more types of misconduct than any other large corporation. The latest additions to the list are bribery and obstruction of justice. In an 8,000-word exposé published recently in the New York Times, top executives at the giant retailer are reported to have thwarted and ultimately shelved an internal investigation of extensive bribes paid by lower-level company officials to expand Wal-Mart’s market share in Mexico.

While Wal-Mart’s outrageous behavior is often in a class by itself, the bribery aspects of the allegations are far from unique. In fact, Wal-Mart is actually a late arrival to a sizeable group of major corporations that have found themselves in legal jeopardy because of what in corporate circles are politely called questionable foreign payments.

That jeopardy has grown more significant in recent years as the Securities and Exchange Commission and the Department of Justice have stepped up enforcement of the Foreign Corrupt Practices Act, or FCPA, which prohibits overseas bribery by U.S.-based corporations and foreign companies with a substantial presence in the United States.

It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.

Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”

While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the FCPA in late 1977. For the first time, bribery of foreign government officials was a criminal offense under U.S. law, with fines up to $1 million and prison sentences of up to five years.

The ink was barely dry on the FCPA when U.S. corporations began to complain that it was putting them at a competitive disadvantage. The Carter Administration’s Justice Department responded by signaling that it would not be enforcing the FCPA too vigorously. That was one Carter policy that the Reagan Administration was willing to adopt. In fact, Reagan’s trade representative Bill Brock led an effort to get Congress to weaken the law, but the initiative failed.

The Clinton Administration took a different approach—trying to get other countries to adopt rules similar to the FCPA. In 1997 the industrial countries belonging to the Organization for Economic Cooperation and Development reached agreement on an anti-bribery convention. In subsequent years, the number of FCPA cases remained at a miniscule level—only a handful a year. Optimists were claiming this was because the law was having a remarkable deterrent effect. Skeptics said that companies were being more careful to conceal their bribes, and prosecutors were focused elsewhere.

Any illusion that commercial bribery was a rarity was dispelled in 2005, when former Federal Reserve Chairman Paul Volcker released the final results of the investigation he had been asked to conduct of the Oil-for-Food Program in Iraq. Volcker’s group found that more than half of the 4,500 companies participating in the program—which was supposed to ease the impact of Western sanctions on Iraq—had paid illegal surcharges and kickbacks to the government of Saddam Hussein. Among those companies were Siemens, DaimlerChrysler and the French bank BNP Paribas.

The Volcker investigation, the OECD convention, and the Sarbanes-Oxley law (whose mandates about financial controls made it more difficult to conceal improper payments) breathed new life into FCPA enforcement during the final years of the Bush Administration and after President Obama took office.

The turning point came in November 2007, when Chevron agreed to pay $30 million to settle charges about its role in Oil-for-Food corruption. Then, in late 2008, Siemens agreed to pay the Justice Department, the SEC and European authorities a record $1.6 billion in fines to settle charges that it had routinely paid bribes to secure large public works projects around the world. This was a huge payout in relation to previous FCPA penalties, yet it was a bargain in that the big German company avoided a guilty plea or conviction that would have disqualified it from continuing to receive hundreds of millions of dollars in federal contracts.

In February 2009 Halliburton and its former subsidiary Kellogg Brown and Root agreed to pay a total of $579 million to resolve allegations that they bribed government officials in Nigeria over a ten-year period. A year later, the giant British military contractor BAE Systems reached settlements totaling more than $400 million with the Justice Department and the UK Serious Fraud Office to resolve longstanding multi-country bribery allegations. In April 2010 Daimler and three of its subsidiaries paid $93 million to resolve FCPA charges. Other well-known companies that have settled similar bribery cases since the beginning of 2011 include Tyson Foods, IBM, and Johnson & Johnson. In most cases companies have followed the lead of Siemens in negotiating non-prosecution or deferred prosecution deals that avoided criminal convictions.

A quarter century after the Watergate investigation revealed a culture of corruption in the foreign dealings of major corporations, the new wave of FCPA prosecutions suggests that little has changed. There is one difference, however. Whereas the bribery revelations of the 1970s elicited a public outcry, the cases of the past few years have generated relatively little comment in the United States—except for the complaints of corporate apologists that the FCPA is too severe. Among those apologists are board members of the Institute for Legal Reform (a division of the U.S. Chamber of Commerce), whose ranks have included the top ethics officer of Wal-Mart.

The Wal-Mart case could turn out to be a much bigger deal than previous FCPA cases—for the simple reason that the mega-retailer appears to have forgotten Watergate’s central lesson that the cover-up is often punished more severely than the crime. A company that has often avoided serious consequences for its past misconduct may finally pay a high price.