Strings Attached

The Biden Administration is causing a stir with its decision to place some conditions on the massive subsidies that are to be awarded to semiconductor companies under the CHIPS and Science Act.  A front page story in the New York Times quotes some economists and business advocates expressing concern that the requirements will detract from the main objectives of the law.

What has these critics upset are provisions that would require giant corporations such as Intel to provide child care for employees, pay union wages to construction workers, run the plants on low-emission sources of energy and avoid stock buybacks. An official at the U.S. Chamber of Commerce told The Times that such practices would “increase cost and delay bringing production online.” Not surprisingly, he argued that the administration should instead focus on “removing regulatory barriers.”

What these protestations ignore is that there is nothing new about attaching strings when government provides financial assistance to corporations. This is done frequently at the state and local level, where agencies providing tax abatements, cash grants, loans and other aid to companies in the name of economic development require the firms to meet job quality standards relating to wages and benefits. The practice is not universal but neither is it uncommon.

Until now, the federal government has tended not to offer large subsidy packages to individual companies, yet it has applied strings when bailouts were provided. For example, in 2009, amid the financial meltdown, the Obama Administration issued guidelines restricting executive compensation at large companies receiving help through the Troubled Asset Relief Program.

In the related area of federal procurement, there are long-standing policies promoting job quality standards. The Davis-Bacon Act, which became law in 1931, requires that contractors on public works projects pay their workers the prevailing wage in the area. The Walsh-Healey Public Contracts Act of 1936 set certain minimum labor standards for companies providing goods to federal agencies, and the McNamara-O’Hara Service Contract Act of 1965 did the same for service providers. In 2021 the Biden Administration raised the minimum wage federal contractors have to pay to $15 an hour, and it mandated project labor agreements, which usually raise pay to union levels, for federal construction projects costing more than $35 million.

This is not to say that the laws are always effective. Worker advocacy groups frequently point out employment abuses committed by federal contractors. Violation Tracker contains more than 9,000 cases in which employers were fined for failing to obey federal or state prevailing wage regulations. Hopefully, these fines led to higher levels of compliance.

Those challenging the CHIPS Act provisions promoting job quality and other public policy objectives are repeating arguments that have been made for decades by Big Business and its defenders. Despite all their free market-rhetoric, large corporations are happy to accept taxpayer-funded financial assistance.  Yet they cannot accept the idea that the aid might come with some obligations.

The strings the Biden Administration is attaching to the semiconductor subsidies are actually not very radical, but they are a helpful step in the direction of making sure that companies receiving government assistance meet higher standards in their treatment of workers, communities and the environment.

Ending the Under-Regulation of the Railroads

When an apparent contract impasse between rail unions and management threatened to bring about a national shutdown late last year, the Biden Administration was quick to act. Unfortunately, the action it took was to ban the walkout without requiring any concessions from the giant rail corporations.

Two months later, a freight train operated by one of those corporations, Norfolk Southern, derailed in East Palestine, Ohio. Many of the 150 railcars—which included tankers filled with hazardous materials such as vinyl chloride—caught fire and burned for days. During this time, the Biden Administration was widely criticized for failing to act promptly.

After a couple of weeks, the administration did catch up, especially once the Environmental Protection Agency got more directly involved. Now the EPA is in charge of the response and is finally requiring Norfolk Southern to remediate the area under plan approved by the agency rather than doing the voluntary cleanup the company had previously promised.

Like many accidents before it, the East Palestine derailment has brought to light some disturbing truths about the way in which the federal government regulates—or fails to regulate—the railroad industry. It is in the wake of these incidents that all the claims by rightwing legislators and corporate executives about heavy-handed oversight of business are revealed to be baseless.

Instead, the problem with railroads is that they are under-regulated and that government officials are too chummy with the major carriers. This is especially true with regard to the Federal Railroad Administration, the unit of the Transportation Department responsible for rail safety.

The FRA’s gentle approach to regulation goes back many years. Here’s an excerpt from a 1996 article in the Los Angeles Times:

The National Transportation Safety Board on Wednesday blamed the Federal Railroad Administration, the Burlington Northern Santa Fe and the railroad industry as a whole for February’s disastrous freight train wreck in the Cajon Pass near San Bernardino…The board said the runaway train derailment apparently occurred because the FRA, the industry and the Santa Fe division of the newly formed Burlington Northern Santa Fe railroad failed to ensure that the train was equipped with a backup electronic brake system that probably could have stopped the train after its main braking system failed… “The problem is that we asked the FRA to do something immediately, and they didn’t do it,” Robert Lauby, chief of the NTSB’s railroad division, told the board.

A 2004 article in the New York Times documented close personal ties between FRA officials and industry executives and lobbyists, adding: “Critics of the agency say that it has, over the years, bred an attitude of tolerance toward safety problems, and that fines are too rare, too small and too slowly collected.” A 2005 audit of the FRA by the Transportation Department’s inspector general expressed concern about the agency’s failure to adequately address systemic safety problems in the industry.

In 2015, following a series of derailments and spills of trains carrying crude oil, the FRA proposed new regulations that were widely criticized as inadequate by members of Congress, state and local officials, and safety advocates.

The Obama Administration did, however, try to implement new rules requiring trains carrying “high hazardous materials” to install electronic braking systems to stop trains more quickly than conventional air brakes. The rule was finalized in 2015, only to be repealed as part of the Trump Administration’s crusade to eliminate regulations.

Reporting published since the East Palestine disaster depicts Norfolk Southern as having taken full advantage of the FRA’s lax oversight and as one of the most aggressive opponents of a proposed regulation that would bar railroads from operating trains with only a single crewmember.

In recent years the company has boosted profits while its accident rates have grown, leading to charges that it is cutting corners on safety to fatten the bottom line. A USA Today analysis found that Norfolk Southern has had the second-highest rate among the major railroads each year since 2019.

The exact cause of the East Palestine derailment is not yet known. If the National Transportation Safety Board finds it was something preventable, that will put heat on both the company and the FRA. The company will face calls to invest more to upgrade its equipment, even at the cost of profits. And the agency will feel new pressure to end its cozy relationship with the industry and show that it is serious about protecting the public.

A Harebrained Response to Labor Shortages

At a time of widespread labor shortages, one might expect policymakers to welcome asylum seekers and economic migrants eager for an opportunity to make a living in the United States. Instead, as the Washington Post reports, legislators in some states have come up with a harebrained proposal for filling those jobs: loosening the restrictions on child labor.

Lawmakers in Wisconsin lifted restrictions on working hours during the school year, but the measure was vetoed by the governor. The Ohio Senate passed a similar bill but it died in the House. Even worse are bills introduced in Iowa and Minnesota that would allow teens as young as 14 to work in dangerous occupations such as meatpacking and construction.

It is unclear whether these legislators are aware that labor activists and social reformers fought for many years in the 19th and early 20th centuries to restrict the exploitation of children in factories, mines, mills and other workplaces. They eventually made progress at the state level, leading to the passage of the federal Fair Labor Standards Act in 1938. The FLSA barred young workers from some occupations and limited the hours they could work in others, both for safety reasons and to prevent adverse effects on educational attainment. Adoption of strong child labor laws came to be viewed as one of the hallmarks of a humane society.

While the FLSA and state regulations eliminated the worst forms of child labor, they did not end abuses entirely. Violation Tracker documents more than 4,000 cases over the past two decades in which an employer paid a penalty for breaking the rules. The fines imposed in these cases amount to $99 million, or an average of about $24,000 per case—a reflection of the fact that penalty levels are far from harsh.

Most child labor violators are small firms, but some large corporations have also committed the offense. Chipotle Mexican Grill has the highest penalty total, mainly due to a $7.75 million settlement the company reached in 2022 with the New Jersey Department of Labor and Workforce Development. An audit conducted by the agency of Chipotle outlets had found over 30,000 violations across the state. Two years earlier, Chipotle reached a $1.87 million settlement with the Massachusetts Attorney General over child labor and other wage and hour violations.

Among the other big companies with substantial child labor penalties from multiple cases are: CVS Health ($464,099), Albertsons ($337,790) and Walmart ($317,378).

Most child labor violations are related to potential harm to young workers, but there are also cases in which the harm is real and even deadly. A 2018 report by the Government Accountability Office cited estimates that workers aged 17 and under sustain thousands of injuries each year. That same report included data showing that work-related fatalities for that same age group totaled 452 for the period from 2003 to 2016. The largest numbers of deaths were in agriculture, followed by construction and mining.

The sensible response to all these statistics would be to tighten the rules regarding child labor, not to weaken them. There are better ways to address labor shortages.

Biden’s Catalogue of Corporate Abuses

There was not much soaring oratory in President Biden’s State of the Union address, but the speech was an unapologetic call for a full set of progressive policy initiatives. It was also a bold critique of big business practices affecting workers, consumers and communities. Biden offered what amounted to a catalogue of corporate misconduct.

Although Biden implicitly praised the private sector for strong job creation during the past few years and explicitly hailed companies planning to make big investments in U.S. semiconductor production (with generous federal subsidies), he also spoke of the prior decades during which corporations moved large numbers of well-paid manufacturing jobs overseas and devastated many communities.

Biden chastised Big Pharma for charging exorbitant prices and generating high profits, warning that he would veto any attempts by Congress to repeal new legislation that will require the industry to negotiate Medicare drug prices for the first time.  

Calling the tax system unfair, Biden lambasted large companies that have managed to avoid paying anything to the federal government and praised the adoption of a 15 percent minimum. Addressing those corporations, he stated: “just pay your fair share.”

Citing Big Oil’s record profits over the past year, Biden criticized the industry for not investing more in domestic production and instead using the windfall for stock buybacks that boost share prices. He called for quadrupling the tax on those transactions.

Biden went after insurance companies for surprise medical bills and called out nursing homes “that commit fraud, endanger patient safety, or prescribe drugs they don’t need.” He took credit for cracking down on shipping companies that charged excessive rates during the supply-chain crunch.

Touting a bill called the Junk Fee Prevention Act, Biden lashed out at hidden surcharges and fees imposed by hotels, airlines, banks, credit card companies, cable TV and cellphone providers, ticket services, and other sectors. “Americans are tired of being played for suckers,” he declared.

Biden took aim at large employers that require workers, even in low-skilled positions, to sign non-competition agreements, blocking them from taking a job with a competing company. Saying he is “sick and tired of companies breaking the law by preventing workers from organizing” unions, he called for passage of the PRO Act.

Speaking of the efforts to keep small business afloat during the pandemic, he vowed to double-down on efforts to prosecute corruption in those programs.

Biden also joined the chorus of voices denouncing the tech giants, stating “we must finally hold social media companies accountable for the experiment they are running on our children for profit.” He called for legislation to “stop Big Tech from collecting personal data on kids and teenagers online, ban targeted advertising to children, and impose stricter limits on the personal data these companies collect on all of us.”

There was a lot more to the speech, but this was a remarkable recitation of the sins of unbridled big business. It is significant that Biden delivered this critique without ever using the word “regulation,” which the Right has endlessly demonized. Yet he spoke repeatedly of both administrative and legislative initiatives to address the abuses.

The latter category is dead in the water in the new divided Congress. It will be up to the Biden Administration to show what it can do through executive action to turn his critique into significant change.

Handling Crime in the Suites

Figuring out how to get corporate executives to obey the law has been a perennial challenge. The Justice Department has apparently concluded that the key to compliance may be to threaten something CEOs and other C-Suite bigwigs love dearly: their annual bonuses.

As Law360 reports, compliance experts are abuzz about an unusual provision the DOJ included in the plea agreement it recently negotiated with Denmark’s Danske Bank. The company had agreed to forfeit $2 billion and plead guilty to fraud in connection with allegations that its lax anti-money-laundering (AML) controls allowed shady customers from Russia and other eastern European countries to funnel suspicious funds through Danske’s subsidiary in Estonia.

What is remarkable in the plea agreement is a requirement that Danske tie its executive bonuses to compliance with the stricter AML procedures the bank agreed to implement. The agreement states:

“The Bank will implement evaluation criteria related to compliance in its executive review and bonus system so that each Bank executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with the Compliance Programs and applicable laws and regulations. A failing score in compliance will make the executive ineligible for any bonus for that year.”

The bank is also supposed to structure its compensation system to “incentivize future compliant behavior and discipline executives for conduct occurring after the filing of the Agreement that is later determined to have contributed to future compliance failures.”

Tying executive compensation to compliance is not entirely new. For example, last year the SEC adopted a rule requiring executives at publicly traded companies to return bonuses in the event of erroneous financial reporting. The use of such clawbacks was raised in the 2010 Dodd-Frank Act and took a dozen years to come into existence.

I am of two minds about this innovation. On the one hand, it is encouraging that DOJ is experimenting with new ways to punish corrupt behavior in the corporate world. Imposing consequences on individual executives is an improvement over the usual practice of simply having the company pay a monetary penalty to make the case go away.

On the other hand, it is a bit dismaying that the punishment being contemplated for those executives is quite so mild. Taking a hit to a bonus worth six or seven figures may be unpleasant to a corporate executive, but it is far from a multi-year prison sentence.

The focus on financial incentives and disincentives for individual business offenders is consistent with the approach DOJ tends to take when cases are brought against companies. As I wrote about recently, the Department is offering corporations new inducements – in the form of reduced monetary penalties — to get them to voluntarily disclose misconduct. This is addition to continuing the practice of allowing companies to enter into leniency agreements known as deferred prosecution and non-prosecution agreements so they do not have to plead guilty to criminal charges.

Time and again, we see corporate miscreants treated with kid gloves. The repeated calls for getting tough on crime never seem to apply when the offenses occur in the suites rather than the streets.

Two-Faced Corporations

illustration from Corporate Knights

The new issue of Corporate Knights, a magazine which usually focuses on celebrating environmental initiatives in the business word, has a cover story with a different angle. Headlined “The Climate Blockers,” the piece highlights major companies with split personalities: They talk a good game when it comes to matters such as sustainability while directly and indirectly promoting policies that impede decarbonization.

Among the corporations deemed to be most guilty of this hypocrisy are U.S. petroleum giants Chevron, ExxonMobil and ConocoPhillips and U.S. utilities Sempra Energy, American Electric and Southern Company. Others on the ten-worst list are BASF, Nippon Steel, Gazprom and Toyota.

This assessment is based on the work of InfluenceMap, a UK-based non-profit which seeks to hold large corporations accountable for their climate practices. Its Climate Policy Footprint report identifies the “most negative and influential” companies globally, based on lobbying and other influence activities—whether carried out by the corporation itself or by its trade associations.

InfluenceMap also identifies the trade associations with the worst track record on climate policy. The biggest culprits are said to be the American Petroleum Institute, American Fuel & Petrochemical Manufacturers, the U.S. Chamber of Commerce, and BusinessEurope.

Some of the companies on the ten-worst list are not only members of these associations but also part of their leadership. Chevron CEO Mike Wirth is also the chairman of the American Petroleum Institute. Chevron and ExxonMobil have representatives on the board of American Fuel & Petrochemical Manufacturers. Chevron, ConocoPhillips and Sempra have representatives on the board of the U.S. Chamber.

InfluenceMap provides a vital service at a time when growing numbers of large companies are professing adherence to ESG principles—especially the environmental component—while quietly working to discourage legislators and policymakers from moving ahead on aggressive climate initiatives.

Strangely, it is also a time when rightwing public officials in the U.S. are trying to gin up public opposition to what are being labeled “woke corporations.” This effort exaggerates the significance of ESG in the business world and ignores the divergence between sustainability p.r. and regressive influence efforts.

There are actually two types of environmental hypocrisy rampant in Corporate America. Not only are purportedly enlightened companies pushing bad policies—they are failing to comply with existing environmental safeguards. This includes not only climate practices, which are not heavily regulated, but also conventional pollution.

This is part of what we document in Violation Tracker. Take, for example, the companies in the InfluenceMap ten-worst. Over the past two decades, Chevron has racked up over $1 billion in fines and settlements. These include a fine of more than $1 million in red Texas last year. ExxonMobil’s total since 2000 is more than $2 billion, including a $9.5 million settlement last year with New Jersey over PCB contamination. They are surpassed by American Electric Power, whose penalty total is nearly $5 billion.

No company that repeatedly breaks environmental laws—nor any company that uses its influence to block or slow down climate-friendly initiatives—should be able to depict itself as an environmental white knight.

DOJ’s Polite Approach to Corporate Crime

The Justice Department cannot seem to decide what stance it wants to take toward corporate criminality. After Biden came into office, DOJ initially signaled a get-tough approach, only to hedge on that last year. A new policy creates even more ambiguity.

Assistant Attorney General Kenneth Polite Jr. just delivered a speech that lives up to his name. He insisted that DOJ is “using every tool at our disposal to combat corporate crime, including more sophisticated data analytics and other means to proactively identify criminal conduct.” Yet he put his main emphasis on the additional opportunities the department will give corporations to reduce penalties and avoid criminal prosecutions altogether. The presentation, in effect, offered a new get out of jail free card to Corporate America.

To be fair, the card is not entirely free—the price is self-reporting. DOJ has apparently decided that the silver bullet for fighting corporate crime is giving companies more incentives to snitch on themselves. Polite’s speech announced a set of enhancements designed to make self-disclosure even more appealing.

At times, the text of his talk reads like an advertisement for a going-out-of-business sale. “If a company voluntarily self-discloses misconduct, fully cooperates, and timely and appropriately remediates, but a criminal resolution is still warranted,” he states, “the Criminal Division will now accord, or recommend to a sentencing court, at least 50%, and up to 75% off of the low end of the U.S. Sentencing Guidelines fine range, except in the case of a criminal recidivist.”

There were even steep penalty discounts offered to companies that don’t come forward: “The revised CEP [Corporate Enforcement Policy] provides incentives for companies that do not voluntarily self-disclose but still fully cooperate and timely and appropriately remediate. In such a case, the Criminal Division will recommend up to a 50% reduction off of the low end of the Guidelines fine range.”

Polite tried to give the impression that a stick is waiting for those who do not opt for the carrots. “The policy is sending an undeniable message: come forward, cooperate, and remediate…Failing to take these steps, a company runs the risk of increasing its criminal exposure and monetary penalties.”

Unfortunately, Justice has squandered its ability to play the bad cop. Take the issue of recidivism. The Biden DOJ initially vowed to crack down on repeat offenders, but they have been allowed to take advantage of leniency deals. This was evident in the case of ABB Ltd, the Swiss company which recently was offered a deferred prosecution agreement to resolve foreign bribery charges despite the fact that it had been involved in similar misconduct in the past. ABB itself was able to avoid criminal prosecution, though two subsidiaries had to plead guilty.

Even that kind of gesture may no longer occur. Polite announced that recidivists will not necessarily be required to plead guilty when faced with new charges and may be eligible for reduced fines even when they do not self-disclose.

There is a fundamental flaw in DOJ’s belief in the benefits of incentivizing corporate self-reporting. That faith seems to be based on the assumption that corporate crime usually involves actions by lower-level personnel. Top executives supposedly learn of the misconduct after the fact and must weigh the costs and benefits of reporting it to the authorities versus keeping quiet.

This ignores the fact that top management frequently is the source of the criminality, either directly or indirectly, as when the leadership of Wells Fargo imposed highly unrealistic revenue targets on employees, prompting them to create millions of sham fee-generating accounts. Penalty incentives will not mean much to residents of the C-suite who may be at risk of individual prosecution.

The other problem with DOJ’s approach is that it projects weakness. Its emphasis on leniency agreements, reduced fines and other incentives gives the impression the department is overwhelmed and outmatched in dealing with corporate miscreants.

Rogue corporations should have to beg for lighter penalties and be offered them only in extraordinary circumstances. Offering special deals to lawbreakers will not blunt corporate crime.

The Bank from Hell

Perhaps because it was announced just days before Christmas, the Consumer Financial Protection Bureau’s giant enforcement action against Wells Fargo has not received all the attention it deserves. The agency imposed a whopping $1.7 billion civil penalty and ordered the bank to provide more than $2 billion in consumer redress.

CFPB took these steps in response to what it called illegal practices affecting over 16 million consumer accounts. Wells was found to have repeatedly misapplied loan payments, wrongfully foreclosed on homes, improperly repossessed vehicles, and incorrectly assessed interest and fees, including surprise overdraft charges. Wells Fargo, it seems, was behaving like the bank from hell.

CFPB’s action does not come as a complete surprise. Wells already had a dismal track record. As shown in Violation Tracker, the bank has paid over $20 billion in fines and settlements during the past two decades. It has been especially tainted since 2016, when the CFPB revealed that bank employees, pressured to meet unrealistic sales goals, had been secretly opening unauthorized accounts in the name of unsuspecting customers who found themselves paying fees for services they had not requested.

Wells was initially fined only $100 million by CFPB, but the controversy over the bogus accounts continued. In 2020 the bank had to pay $3 billion to resolve criminal and civil charges brought by the Justice Department and the SEC. The impact of the case was diminished by the fact that DOJ offered Wells a deferred prosecution leniency agreement and by the decision not to prosecute any individual executives.

A different approach was taken by the Federal Reserve in its capacity as a bank regulator. In 2018 it announced that Wells would be subject to restrictions on its growth until it sufficiently improved its governance and internal controls. The Fed also pressured the bank to replace four members of its board of directors.

The new CFPB case suggests that neither the DOJ nor the Fed action was sufficient to get Wells to change its ways. Other evidence comes from private class action lawsuits. These include a $386 million settlement to resolve allegations the bank added unnecessary insurance fees to car loan bills and a $30 million settlement of allegations it improperly charged interest on Federal Housing Administration-insured loans after they were paid off.

All of this leads to two questions: Why does anyone continue to do business with Wells Fargo? And why do regulators allow it to continue to operate? The answers to both have a lot to do with the enormous concentration in the U.S. banking sector. In some parts of the country, Wells may be one of only a tiny number of full-service commercial banks doing business.

Size is also a factor in how Wells is treated by regulators. As outraged as they may be about the bank’s misconduct, they are not inclined to take any punitive action which might threaten its viability. A villainous Wells Fargo is apparently seen as preferable to the collapse of a bank with nearly $2 trillion in assets.

It is difficult to avoid the conclusion that Wells is taking advantage of this situation by pretending to reform its practices while continuing to conduct its dubious form of business as usual. Regulators need to find a way to bring this rogue bank under control once and for all.

Note: The new CFPB action was announced right after we completed an update of Violation Tracker. It will be added to the database as part of the next update later this month.

The 2022 Corporate Rap Sheet

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corporate Crime Groundhog Day

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

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

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

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

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

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

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

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

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

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