Elizabeth
Warren slams corporate wrist-slapping
MoneyWatch
By Larry Light
January 29, 2016,
With populist anger in the political air,
Sen. Elizabeth Warren (D-Massachusetts) issued a report condemning what she saw
as lenient treatment of corporate malfeasance, citing 20 concluded federal
cases from 2015.
Coming three days before the Feb. 1
An icon of her party's liberal wing,
In a 12-page booklet titled "Rigged
Justice: How Weak Enforcement Lets Corporate Offenders Off Easy," Warren
listed 20 civil and criminal cases last year showing how "corporate
criminals routinely escape meaningful prosecution for their misconduct."
The 20 cases covered industries ranging from
mining to banking to autos. But the
In the Upper Big Branch mine case, in which
29 Massey Energy employees died in a 2010 mine explosion, a jury found its
former chief executive officer, Don Blankenship, guilty of one misdemeanor
count. That's punishable by up to a year behind bars -- despite 2,400 safety
violations since 2009, the report said.
While federal prosecutors didn't argue that
the CEO was directly responsible for the Upper Big Branch deaths, they said his
leadership style placed profits over lives. Blankenship was acquitted of
charges that could have led to 30 years in prison. His lawyers maintained that
Blankenship's indictment was overkill. He will be sentenced in the spring.
The case that Warren highlighted as favoring
Wall Street, a much-reviled sector following the financial crisis, focused on a
scheme among five of the world's largest banks to rig the foreign exchange market.
No executive was charged, and the banks ended up paying a $5.6 billion
settlement.
JPMorgan Chase (JPM), Citicorp (C), Barclays
(BCS) and Royal Bank of Scotland (RBS) pleaded guilty to fixing the price of
euros and U.S. dollars. The main banking unit of UBS Group (UBS) pleaded guilty
to interest rate manipulation. The traders in this plot referred to themselves
as "the Cartel."
Although the pleas normally should result in
federal regulators barring the institutions from a number of activities in the
Warren also castigated the $900 million plea
deal of General Motors (GM) to avoid criminal charges stemming from faulty
ignition switches. The defect led to 124 deaths and 275 injuries, when small
cars lost power so the brakes and steering would no longer work. The report
noted that the fine was less than 1 percent of GM's annual revenue.
Saying the upshot of such light treatment
showed "following the law was merely optional,"
*****************************************
Rigged
Justice
CONTENTS
I. EXECUTIVE SUMMARY
II. INTRODUCTION
III. RIGGED JUSTICE: 2015 CASES
A. Financial Crimes and Offenses
B. Education and Student Loans
C. Automobile Safety Law Violations
D. Occupational Safety Laws
E. Environmental Laws
F. Failure to Enforce Trade Laws
G. Drug Manufacturer Fraud and Misrepresentation
IV. ENDNOTES
I. EXECUTIVE SUMMARY
Laws are effective only
to the extent they are enforced. A law on the books has little impact if
prosecution is highly unlikely.
This country devotes
substantial resources to the prosecution of crimes such as murder, assault, kidnapping,
burglary and theft, both in an effort to deter future criminal activity and to
provide victims with some degree of justice. Strong enforcement of corporate
criminal laws serves similar goals: to deter future criminal activity by making
would-be lawbreakers think twice before breaking the law and, sometimes, by
helping victims recover from their injuries.
When government
regulators and prosecutors fail to pursue big corporations or their executives
who violate the law, or when the government lets them off with a slap on the
wrist, corporate criminals have free rein to operate outside the law. They can
game the system, cheat families, rip off taxpayers, and even take actions that
result in the death of innocent victims—all with no serious consequences.
The failure to punish
big corporations or their executives when they break the law undermines the foundations
of this great country: If justice means a prison sentence for a teenager who
steals a car, but it means nothing more than a sideways glance at a CEO who
quietly engineers the theft of billions of dollars, then the promise of equal
justice under the law has turned into a lie. The failure to prosecute big, visible
crimes has a corrosive effect on the fabric of democracy and our shared belief
that we are all equal in the eyes of the law.
Under the current
approach to enforcement, corporate criminals routinely escape meaningful
prosecution for their misconduct. This is so despite the fact that the law is
unambiguous: if a corporation has violated the law, individuals within the
corporation must also have violated the law. If the corporation is subject to charges
of wrongdoing, so are those in the corporation who planned, authorized or took
the actions. But even in cases of flagrant corporate law breaking, federal law
enforcement agencies – and particularly the Department of Justice (DOJ) –
rarely seek prosecution of individuals. In fact, federal agencies rarely pursue
convictions of either large corporations or their executives in a court of law.
Instead, they agree to criminal and civil settlements with corporations that
rarely require any admission of wrongdoing and they let the executives go free
without any individual accountability.
The Securities and
Exchange Commission (SEC) is particularly feeble, often failing to use the full
range of its enforcement toolbox. Not only does the agency fail to demand
accountability, the SEC frequently uses its prosecutorial discretion to grant
waivers to big companies so that those companies can continue to enjoy special
privileges despite often-repeated misconduct that legally disqualifies them
from receiving such benefits. Lax enforcement at other agencies, such as the
Occupational Health and Safety Administration (OSHA), stems primarily from a
lack of important legal tools and persistent underfunding by Congress that
often turn the legal rules into little more than suggestions that companies can
freely ignore.
The contrast between the
treatment of highly paid executives and everyone else couldn’t be sharper. The U.S.
has a larger prison population than any nation in the world. People are locked
up for long stretches for crimes that involve thousands—or even hundreds—of dollars.
Even the settlement process is different. For most people accused of a crime,
prosecutors may be willing to plead out the cases, but they typically require
admission of guilt and, if the crime involves more than a trivial amount of money,
time in jail. Various three-strikes rules frequently put people away for life
for non-violent crimes involving modest amounts of money. Politicians routinely
get elected promising to be “tough on crime,” and both federal and state
governments devote immense resources to put and keep criminals in prison.
The Obama Administration
has made repeated promises to strengthen enforcement and hold corporate criminals
accountable, and the DOJ announced in September that it would place greater
emphasis on charging individuals responsible for corporate crimes. Nonetheless,
both before and after this DOJ announcement, accountability for corporate
crimes is shockingly weak.
This report prepared for
Sen. Warren – the first of an annual series on enforcement – highlights twenty criminal
and civil cases in 2015 in which the federal government failed to require
meaningful accountability from either large corporations or their executives involved
in wrongdoing. These twenty cases are not the only examples of prosecutorial
timidity when dealing with well-financed corporate defendants. Instead, they illustrate
patterns across a range of areas from financial crimes to personal injury to
environmental disasters. Despite the fact that the twenty cases listed here
were among the most highly publicized cases of corporate misconduct settled in
2015, in only one case was a corporation taken to trial and an individual
indicted or otherwise required to answer for their contributions to corporate
wrongdoing—and that case involved multiple deaths.
Because prosecutors took
only one of these twenty cases to trial and, in many cases, did not even
require an admission of guilt as part of the settlement, it is not possible to
officially tag most of these corporations and their executives for crimes. Even
so, each case is based on widely reported—and widely admitted—facts that, on
their face, raise a prima facie case of unlawful conduct. These
corporations paid millions—or billions—of dollars to make these cases disappear
before any public hearing. If each of these cases had gone to trial, it is
possible that some of the companies might have raised a defense that would have
created reasonable doubt in jurors’ minds, but that is precisely the problem
here: because the prosecutors never took any of these corporations or their
executives to trial, there was never a need for anyone to answer in court under
oath for their actions.
The criminal and civil cases identified include:
• Education Management
Corporation (EDMC). In November 2015, DOJ settled a civil case with EDMC, the
second-largest for-profit education company in the country. EDMC illegally paid
high-pressure recruiters to enroll students and violated the False Claims Act
by falsely certifying that it complied with Title IV of the Higher Education
Act. EDMC received $11 billion in payments (90% of it via federal student
grants and loans) from 2003-2011 as a result of these efforts. But the
settlement recovered only $95 million – less than one percent of this total.
The DOJ settlement did nothing to resolve federal student loan debts owed by
those who were victims of the illegal recruitment, held no individual
executives at EDMC accountable, required no admission of wrongdoing, and did
nothing to prevent EDMC from receiving federal funds in the future.1
• Standard & Poor’s
(S&P). In February 2015, S&P agreed to pay a $1.375 billion civil settlement
to the DOJ, 19 states, and the District of Columbia. The settlement came in
response to charges that the ratings agency engaged in a scheme to defraud
investors when it issued inflated ratings that misrepresented the true credit
risks of residential mortgage-backed securities and collateralized debt
obligations – one of the chief causes of the 2008 financial crisis that cost
the economy trillions of dollars. This settlement was less than one-sixth the size
of the fine DOJ and the states originally sought. 2 The
government did not require that S&P admit to breaking the law, and it
failed to prosecute a single individual.3
• “The Cartel”:
Citigroup, JPMorgan Chase & Co, Barclays, UBS AG, and Royal Bank of
Scotland. In May 2015, Citigroup, JP Morgan Chase & Co, Barclays, UBS
AG, and Royal Bank of Scotland (RBS) agreed to pay a combined $5.6 billion
settlement to the DOJ. Bank traders from Citicorp, JP Morgan, Barclays, and RBS
created a secret group known as “The Cartel,” which for more than five years
manipulated exchange rates in a way that made the banks billions of dollars at
the expense of clients and investors. And, the fifth bank, UBS separately
agreed to plead guilty to wire fraud charges in connection with interest rate
manipulation. Although DOJ required admissions of guilt as part of the settlement
– a reflection of the severity of the charges – not one single individual has
yet faced any DOJ criminal prosecution. Moreover, the SEC granted waivers to
each bank so that the banks could avoid the collateral consequences that were
supposed to accompany a guilty plea. Those waivers meant that the banks’ much-hyped
guilty pleas were ultimately “likely to carry more symbolic shame than
practical problems.”4
• The Upper Big Branch
Mine Disaster. Donald L. Blankenship, former CEO of Massey Energy Company,
was convicted in December 2015 of only one misdemeanor (conspiring to willfully
violate mandatory mine safety and health standards) in the Upper Big Branch
mine explosion that resulted in 29 deaths – despite the fact that his company
had a years-long history of safety failures, including 2,400 safety violations
in 2009 alone.5
The penalty in this case was so small because
federal mine safety laws allow only a misdemeanor charge – not a felony - even
for deadly violations of safety regulations.6
• General Motors (GM). GM’s
years-long cover up of ignition switch problems in its vehicles resulted in at
least 124 deaths and 275 injuries. But the DOJ deferred prosecution agreement
in this case included a fine for GM ($900 million) that amounted to less than
one percent of the company’s annual revenue, held no individual accountable for
the cover-up, and suspended the criminal charges against GM - wire fraud and
false statements - to be dismissed if the company complied with the agreement.7
• Trade Law Enforcement.
In
2015 the United States Trade Representative (USTR) failed to enforce key
environmental and labor requirements in trade agreements with Guatemala,
Colombia, and Peru, despite substantial evidence of violations. The lack of enforcement
sends a dangerous signal to our trade partners that they need not honor their promises
on improving labor and environmental standards.
• Novartis. In November
2015, DOJ announced a $390 million settlement of a civil lawsuit with Novartis
Pharmaceuticals over allegations that the company engaged in a kickback scheme with
pharmacists to increase sales of their drugs to Medicare and Medicaid patients.
These kickbacks allegedly were paid even as Novartis was already under a
corporate integrity agreement for previous violations of the law. The $390
million represented just over 10% of the damages sought by the government. It
placed no further restrictions on Novartis’ participation in federal government
healthcare programs, included no admission of wrongdoing, did not include an
indictment of any individual responsible for the kickbacks, and was so paltry
that after the settlement, Novartis’s CEO claimed that “whether we change our
behavior …[in response to the settlement] remains to be seen.”8
This report contains
additional examples of feeble enforcement against corporate criminals in 2015.
The examples raise the disturbing possibility that some giant corporations—and
their executives—have decided that following the law is merely optional. For
these companies, punishment for breaking the law is little more than a cost of
doing business.
II. INTRODUCTION
Much of the public and
media attention on Washington focuses on enacting laws. And strong laws are
important – prosecutors must have the statutory tools they need to hold
corporate criminals accountable. But putting a law on the books is only the
first step. The second, and equally important, step is enforcing that law. A
law that is not enforced – or weakly enforced – may as well not even be a law
at all.
Obama Administration
officials routinely discuss the need for tough enforcement. Former Attorney
General Eric Holder in 2014 said that “instilling in others an expectation that
there will be tough enforcement of all applicable laws is an essential
ingredient to ensuring that corporate actors weigh their incentives properly –
and do not ignore massive risks in blind pursuit of profit.”9 In
September 2015, Deputy Attorney General Sally Quillian Yates announced a new
DOJ policy stressing the importance of holding individuals accountable for
corporate crime, stating that “Crime is crime. And it is our obligation at the
Justice Department to ensure that we are holding lawbreakers accountable
regardless of whether they commit their crimes on the street corner or in the
boardroom.”10 Despite this rhetoric, DOJ
civil and criminal settlements – and enforcement actions by other federal agencies
– continually fail to impose any serious threat of punishment on corporate
offenders. This is true regardless of the scope of their crimes or their impact
on the economy, on workers, on investors, or on the environment. The pattern of
weak enforcement extends beyond the Justice Department to other enforcement agencies.
The failure to enforce
critical financial, environmental, and public health and safety laws has had a
tremendous impact on the public. To take just one example, federal regulators
in the Bush Administration and the independent banking regulatory agencies had the
legal authorities they needed to stop much of the fraudulent and high-risk
conduct that led to the 2008 financial crisis – a crisis that caused millions
of people to lose their homes, their jobs, and their savings. But regulators
sat on their hands, paving the way for a devastating economic crisis and
billions in taxpayer bailouts. When federal agencies fail to enforce certain laws
– especially those laws that are intended to curtail misconduct by large
corporations and their senior executives – the consequences can be devastating.
The purpose of this annual report is to highlight examples of the most
egregious enforcement failures from the previous year. Sometimes these weak enforcement
cases are the result of laws – such as OSHA, and the federal mine safety law –
that give the agencies only limited authority and allow only limited punishment.
But in most instances,
these cases are a result of failure by regulators to use the tools Congress has
already provided to impose meaningful accountability on corporate offenders.
Whether as a result of limited resources or a lack of political will, this limp
approach to corporate enforcement, particularly in response to serious
misconduct that cost Americans their jobs, their homes, or, in some cases,
their lives, threatens the safety and security of every American.
As the examples in this
report demonstrate, federal regulators regularly let big corporations and their
highly paid executives off the hook when they break the law.
“Mens
Rea” Proposals Would Further Weaken Enforcement Despite
already weak federal enforcement, Republicans in the House and Senate argue
that the federal government is too tough on corporate wrongdoers. Currently,
Republicans are using a bipartisan bill intended to reduce mandatory sentences
for low-level drug offenders as a vehicle for an amendment to make it harder
for federal prosecutors to prove that white collar criminals violated hundreds
of different laws. If adopted, this amendment would severely weaken the already
anemic enforcement of federal white-collar criminallaws.11
III. RIGGED JUSTICE: 2015
CASES
A.
Financial Crimes and Offenses
• Standard & Poor’s
(S&P). In February 2015, S&P agreed to pay a $1.375 billion civil settlement
to the DOJ, 19 states, and the District of Columbia. The settlement came in
response to charges that the ratings agency engaged in a scheme to defraud
investors when it issued inflated ratings that misrepresented the true credit
risks of residential mortgage-backed securities and collateralized debt
obligations – one of the chief causes of the 2008 financial crisis that cost
the economy trillions of dollars. This settlement was less than one-sixth the size
of the fine DOJ and the states originally sought. The government did not
require that S&P admit to breaking the law, and it failed to prosecute a
single individual.12
• “The Cartel”:
Citigroup, JPMorgan Chase & Co, Barclays, UBS AG, and Royal Bank of Scotland.
In
May 2015, Citigroup, JP Morgan Chase & Co, Barclays, UBS AG, and Royal Bank
of Scotland (RBS) agreed to pay a combined $5.6 billion settlement to the DOJ.
Bank traders from Citicorp, JP Morgan, Barclays, and RBS created a secret group
known as “The Cartel,” which for more than five years manipulated exchange
rates in a way that made the banks billions of dollars at the expense of
clients and investors. And, the fifth bank, UBS, separately agreed to plead
guilty to wire fraud charges in connection with interest rate manipulation.
Although DOJ required admissions of guilt as part of the settlement – a reflection
of the severity of the charges – not one single individual faced any criminal
prosecution. Moreover, the SEC granted waivers to each bank so that the banks
could avoid the collateral consequences that were supposed to accompany a guilty
plea. Those waivers meant that the banks’ much-hyped guilty pleas were
ultimately “likely to carry more symbolic shame than practical problems.”13
• Deutsche Bank DOJ
LIBOR Settlement. In April 2015, DB Group Services Limited, a wholly owned
subsidiary of Deutsche Bank, agreed to pay a $775 million settlement to DOJ. The
settlement came in response to charges that the bank rigged the London
Interbank Offer Rate (LIBOR). LIBOR is a worldwide benchmark for approximately
$10 trillion in loans including some mortgages, student loans, and auto loans.
DB Group Services pleaded guilty to wire fraud, and the parent Deutsche Bank
entered into a deferred prosecution agreement “to resolve wire fraud and
antitrust charges.”14
Deutsche Bank was singled out as an “especially
aggressive participant” in the LIBOR scheme, and “also was criticized for
failing to cooperate fully with U.S. and British authorities.”15 Regulators’ investigations revealed 29 employees to be
involved in the misconduct.16 But DOJ did
not prosecute any individuals and levied a fine that “isn’t likely to inflict
severe damage on Deutsche Bank” and that merely “dented” Deutsche Bank profits
for the first quarter of 2015.17 And several
weeks after the settlement, the SEC granted Deutsche Bank a waiver allowing the
company to continue to enjoy special regulatory advantages designed to be
available only to law-abiding banks.18
• Citigroup. In August
2015, two Citigroup affiliates agreed to pay nearly $180 million to the SEC to
settle allegations that they defrauded investors in the lead-up to the 2008 financial
crisis. The two units of Citigroup were accused of offering and selling risky, highly
leveraged bonds to investors from 2002 to 2008 with false assurances that the
bonds were safe and low-risk. The behavior cost investors an estimated $2
billion, more than ten times the amount of the settlement.19 The
settlement did not require Citigroup to admit to any wrongdoing, the SEC
refused to identify the individuals responsible by name, and no individuals
were prosecuted. In response to this settlement, New York Times columnist
Gretchen Morgensen asked “How can we expect Wall Street’s me-first culture to
change when regulators won’t pursue or even identify the me-firsters who are
directly involved?”20
• Deutsche Bank SEC
Derivatives Settlement. In May 2015, Deutsche Bank AG agreed to pay approximately
$55 million to the SEC to settle allegations that the bank hid losses of over
$1.5 billion in 2008-2009. The SEC stated that Deutsche Bank’s statements did not
accurately reflect the “significant risk” it faced. Despite the fact that this
was the second significant Deutsche Bank settlement of 2015, the company did
not admit any wrongdoing, no individuals were held accountable, and the settlement
was so small that one analyst stated that it “isn’t relevant for Deutsche
Bank.”21
• JP Morgan Conflicts of
Interest. In December 2015, JP Morgan Chase & Company agreed to pay more
than $300 million in a settlement with the SEC and CFTC in which the company was
held responsible for “numerous conflicts of interest in how it managed
customers’ money over a half decade.”22 According to
Bloomberg Business, the settlement was so weak that “JPMorgan can continue
operating as it has been in one of its most profitable businesses. The $307
million fine... account[s]for a bit more than one percent of the company’s
annual operating profits, or about a month of those at its asset-management
division.”23 And the SEC almost immediately
granted a waiver to allow JP Morgan continued access to special regulatory
privileges that are designed for lawabiding banks.24 In response to this settlement, the New York Times concluded,
“The settlement between JPMorgan and the SEC offers little reason to trust that
banks and regulators will be putting investors’ interests first.”25
B.
Education and Student Loans
• Education Management
Corporation (EDMC). In November 2015, DOJ settled a civil case with EDMC, the
second-largest for-profit education company in the country. EDMC illegally paid
high-pressure recruiters to enroll students and violated the False Claims Act
by falsely certifying that it complied with Title IV of the Higher Education
Act. EDMC received $11 billion in payments (90% of it via federal student
grants and loans) from 2003-2011 as a result of these efforts. But the
settlement recovered only $95 million – less than one percent of this total.
The DOJ settlement did nothing to resolve federal student loan debts owed by
those who were victims of the illegal recruitment, held no individual
executives at EDMC accountable, required no admission of wrongdoing, and did
nothing to prevent EDMC from receiving federal funds in the future.26
• Navient and Student Loan Servicers. In May 2014,
the Department of Justice and FDIC reached a settlement for nearly $100 million
with student loan servicer Navient (formerly known as Sallie Mae) for
“intentional, willful” and systematic violations of servicemembers’ rights
under the Servicemembers Civil Relief Act.27 The case then moved
to the Department of Education (ED). Despite the 2014 findings of repeated
violations against America’s active duty and retired military, ED took no
action against Sallie Mae, instead announcing it would initiate a “thorough”
review of the company’s actions. Before the review was complete, ED extended
the company’s $100 million contract for an additional year. The review was
finally completed in June 2015, but it failed to examine the full range of
cases and violations, and did not accurately assess whether Navient and other
student loan servicers were following the law.28 Based on this deeply flawed report, ED did nothing, so that, despite
its 2014 settlement breaking the law, Navient continues to collect tens of
millions of dollars from the federal government to service student loans.
C.
Automobile Safety Law Violations
• General Motors (GM). GM’s
years-long cover-up of ignition switch problems in its vehicles resulted in at
least 124 deaths and 275 injuries. But the September 2015 DOJ deferred prosecution
agreement in this case included a fine for GM ($900 million) that represented less
than one percent of the company’s annual revenue, held no individual
accountable for the cover-up and included no criminal charges against any
individuals, and suspends the criminal charges against GM - wire fraud and
false statements - to be dismissed if the company complies with the agreement.29 One
critic called this settlement “shamefully weak,” and University of Virginia Law
Professor Brandon Garrett, said he was “horrified” by the weakness of the
deferred prosecution agreement.30
• Honda Airbag
Settlement. In January 2015, Honda was fined $70 million by the National Highway
Traffic Safety Administration (NHTSA) for failing to disclose more than 1,700
reports of deaths, injuries, and other “early warning” information to the NHTSA
over an 11-year span.31
Honda’s airbag supplier Takata has now been accused
of making airbags that explode violently when they deploy. Because Honda failed
to tell NHTSA of reports that it received of airbags rupturing as far back as
2004, including one death, the agency—and the public—were denied the opportunity
to head off this problem much earlier and before more people had been injured. Honda
did not terminate the employment of anyone after an internal audit found
serious problems with Honda safety reporting to NHTSA. NHTSA charged Honda on
two counts and fined the company the maximum permissible under the auto safety
law, allowing the agency to collect the statutory maximum of $35 million twice.32
This fine amounted to about one percent of Honda’s
2015 profits. To date, DOJ has not filed any criminal charges against the
company or any of its executives.
• Graco Children’s
Products. In March 2015, Graco Children’s Products agreed to resolve
allegations that it refused to recall approximately four million children’s car
seats with defective buckles.33 Documents demonstrated that
parents began complaining about the buckles to Graco in 2009, and the company
denied that the problems were due to a defect for years, telling parents
instead that the buckles should be cleaned while arguing there was not a safety
issue. After determining that the buckles could endanger children in an
emergency by forcing parents to cut the straps in order to free their children,
NHTSA demanded a recall in 2014. Graco initially refused the request before
finally recalling the seats a month later. Although the headlines indicated
that the company would be penalized $10 million, the settlement includes only a
$3 million fine and a requirement that Graco spend $7 million to develop safety
programs, including “identifying potential safety trends affecting car seats
industrywide and launching a child safety awareness campaign”34 – investments that would presumably be a normal course of
business for a car seat manufacturer.
D.
Occupational Safety Laws
• The Upper Big Branch
Mine Disaster.
Donald L. Blankenship, former CEO of Massey Energy Company, was
convicted in December 2015 of only one misdemeanor (conspiring to willfully
violate mandatory mine safety and health standards) in the Upper Big Branch
mine explosion that resulted in 29 deaths – despite the fact that his company
had a years-long history of safety failures, including 2,400 safety violations
in 2009 alone.35
The penalty in this case was so small because
federal mine safety laws allow only a misdemeanor charge – not a felony - even
for deadly violations of safety regulations.36
• DuPont and Methyl
Mercaptan. In November 2014, toxic methyl mercaptan was accidentally released
at DuPont’s facility in LaPorte, Texas, killing one employee nearby and three
others who came to her aid. In May 2015, OSHA cited DuPont for 11 violations at
that factory, and in July 2015 OSHA cited DuPont for eight more violations.
Despite the four deaths and multiple violations, DuPont was fined only $372,000
by OSHA.37 OSHA also placed DuPont into its Severe Violator
Enforcement Program, which places them under higher scrutiny for inspections.
No individual DuPont executives were held accountable. In response to this
meager penalty, workplace safety expert Thomas Fuller said that “These fines
are just a drop in the bucket … OSHA is really little more than a paper tiger.”38
E.
Environmental Laws
• ExxonMobil Pegasus
Pipeline Oil Spill. In early 2013, ExxonMobil’s Pegasus Pipeline ruptured, spilling
approximately 134,000 gallons of heavy crude oil on Mayflower, Arkansas. The
oil contaminated homes and displaced families, eventually seeping into a nearby
creek, wetlands, and parts of Lake Conway. Maximum Clean Water Act fines based
on the amount of spilled oil could have been as high as $21.5 million. But in
April 2015, ExxonMobil agreed in a civil settlement to pay just over $5 million
in total fines and penalties.39 This was not the only problem
with the settlement; the Central Arkansas Water utility said, “The proposed
consent decree does nothing to protect the vital water resources within the
State of Arkansas from harm when the next segment of the Pegasus pipeline ruptures
… [and] does not require [Exxon] to perform any corrective measures or take additional
precautionary measures to prevent future spills from the Pegasus pipeline.”40
Not one of the corporation’s executives was held responsible.
• Bayer CropScience LP. In August
2008, an explosion at a Bayer pesticide plant in Institute, West Virginia,
killed two workers. Bayer was alleged to have failed to comply with its risk management
plan and failed to properly train employees prior to the explosion. More than seven
years later, in September 2015, Bayer agreed to a $5.6 million settlement with
EPA. No individuals were held accountable. The settlement included only
$975,000 in civil fines and $4.6 million in safety and emergency response
expenditures by Bayer, much of which the company was likely to spend on similar
projects even in the absence of the agreement.41
• BP Deepwater Horizon
Final Civil Claims Settlement.
In October 2015, DOJ and
five states announced a final settlement with BP for civil claims for natural
resource damage arising from the company’s massive 2010 Gulf of Mexico
Deepwater Horizon oil spill. The settlement required the company to pay $20.8
billion, and Attorney General Loretta Lynch, who described the oil spill as
“the worst environmental disaster in American history,”42 said
that “BP is receiving the punishment it deserves.” The settlement was
structured in a way that allowed BP to deduct $15 billion of the payments from
the company’s income for tax purposes, reducing the impact of the civil penalty
– which BP will pay over 18 years – by over $5 billion.43
F.
Failure to Enforce Trade Laws
There are numerous
examples of U.S. officials failing to enforce or delaying enforcement of key
provisions of trade agreement, going back decades.44 Examples
from 2015 include:
• After years of
complaints about Guatemala’s failure to meet CAFTA labor standards, the USTR
finally brought a labor enforcement case under the trade agreement; this case
went to a hearing on June 2, 2015, with a panel decision required by agreement
within 120 days.45
But the USTR approved an extension of this
decision, and in November 2015, with the report not yet complete, a panelist
withdrew and work was suspended until November 27. The report still has not
been released, and it is now more than 210 days since the hearing.
• In 2015 the USTR
failed to take action against countries violating key free trade law environmental
obligations, neglecting new and detailed reports of illegal logging in Peru that
violated the U.S.-Peru Trade Promotion Agreement.46 An analysis of
the problem found that USTR took “[n]o action to investigate industry, in the
United States or Peru, with documented evidence of repeated and persistent engagement
in illegal harvest and trade or [no action to] prosecute known violations.”47
• In April, 2015,
Colombia’s National Union School issued a damning report on Colombia’s failure to
comply with its labor obligations, finding that “Colombian workers have
suffered more than 1,933 threats and acts of violence, including 105
assassinations of union activists and 1,337 death threats.” But the USTR has
not initiated any enforcement efforts in response.48
G.
Drug Manufacturer Fraud and Misrepresentation
• Novartis. In November
2015, DOJ announced a $390 million settlement of a civil fraud lawsuit with
Novartis Pharmaceuticals over allegations that the company engaged in a kickback
scheme with pharmacists to increase sales of their drugs to Medicare and
Medicaid patients. These kickbacks allegedly were paid even as Novaris was
already under a corporate integrity agreement for previous violations of the
law. This $390 million represented just over 10% of the damages sought by the government.
It placed no further restrictions on Novartis’ participation in federal
government healthcare programs, included no admission of wrongdoing, and did
not include an indictment of any individual responsible for the kickbacks. The settlement
was so paltry that after it was announced, Novartis’s CEO candidly noted that “whether
we change our behavior …[in response to the settlement] remains to be seen.”49
IV. ENDNOTES
1)
Department of
Justice, For-Profit College Company to Pay $95 Million to Settle Claims
of
Illegal Recruiting, Consumer Fraud, and Other Violations (Nov. 16,
2015)
(http://www.justice.gov/opa/pr/profit-college-company-pay-955-million-settle-claims-illegal-recruiting-consumerfraud-
and); Letter from
Sens. Warren, Durbin, and Blumenthal to The Honorable Loretta Lynch, Attorney
General of the United States, and the Honorable Arne Duncan, U.S. Secretary of
Education (Nov. 30, 2015) (http://www.warren.senate.gov/files/documents/2015-11-30_Letter_
to_Depts_of_Edu_and_Justice_re_EDMC_Settlement.pdf). A separate settlement by
state Attorneys General required that EDMC forgive student loan debts it was
owed by former students, but neither this settlement nor the DOJ settlement
required forgiveness of federal student loans. Had an admission of guilt been
obtained by DOJ, students would “have had potential grounds to discharge their
[federal] loans taken out to attend the college.” New York Times, (For-Profit
College Operator EDMC Will Forgive Student Loan) (Nov. 16, 2015) (http://www.
nytimes.com/2015/11/17/us/for-profit-college-operator-edmc-will-forgive-student-loans.html?_r=0).
2) Wall Street
Journal, State Lawsuits Could Add to S&P Exposure (Feb. 6, 2015);
(http://www.wsj.com/articles/
SB10001424127887324906004578288441441869834?cb=logged0.32419539988040924).
3)
Department of
Justice, Justice Department and State Partners Secure $1.375 Billion
Settlement
with S&P for Defrauding Investors in the Lead Up to the Financial
Crisis (Feb.
3, 2015)
(http://www.justice.gov/opa/pr/justice-department-and-state-partners-secure-1375-billion-settlementsp-defrauding-investors);
USA Today, Critics Blast Justice Department’s S&P Settlement
(Feb. 3, 2015)
(http://www.usatoday.com/story/money/business/2015/02/03/sp-settlement-14b-wrongdoing-change/22808017/).
4) New
York Times, Rigging
of Foreign Exchange Market Makes Felons of Top Banks (May 20, 2015)
(http://www.nytimes.com/2015/05/21/business/dealbook/5-big-banks-to-pay-billions-and-plead-guilty-in-currency-and-interest-rate-cases.html).
5) New York Times, Mixed
Verdict for Donald Blankenship, Ex-Chief of Massey Energy, After Coal Mine
Blast (Dec. 3, 2015) (http://www.nytimes.com/2015/12/04/us/donald-blankenship-massey-energy-upper-big-branch-mine.html).
6) Charleston
Gazette-Mail, After Blankenship Trial, Seeking Stiffer Penalties for Mine
Safety Crimes (Dec. 4, 2015) (http://www.wvgazettemail.com/article/20151204/GZ15/151209762/).
7) New
York Times, Many
Messages in the GM Settlement (Sep. 21, 2015)
(http://www.nytimes.com/2015/09/22/business/dealbook/manymessages-in-the-gm-settlement.html?_r=0).
8) Department of
Justice, Manhattan U.S. Attorney Announces $370 Million Civil Fraud Settlement
Against Novartis Pharmaceuticals For Kickback Scheme Involving High-Priced
Prescription Drugs, Along With $20 Million Forfeiture Of Proceeds From The
Scheme (Nov. 20, 2015)
(http://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-370-million-civil-fraud-settlement-against-novartis);
Law360, Five Takeaways From the Novartis FCA Settlement (Nov. 1, 2015)
(http://www.law360.com/articles/720152/5-takeaways-from-the-novartisfca-settlement).
9) Department of
Justice, Attorney General Holder Remarks on Financial Fraud Prosecutions at NYU
School of Law (Sep. 17, 2014) (http://
10) Department of
Justice, Deputy Attorney General Sally Quillian Yates Delivers Remarks at New
York University School of Law Announcing New Policy on Individual Liability in
Matters of Corporate Wrongdoing (Sep. 10, 2015)
(http://www.justice.gov/opa/speech/deputy-attorneygeneral-
sally-quillian-yates-delivers-remarks-new-york-university-school).
11) National
Journal, Divided GOP Ponders Way Forward on Criminal Justice Reform (Jan. 20,
2016) (http://www.nationaljournal.com/s/508111/divided-gop-ponders-way-forward-criminal-justice-reform).
12) Department of
Justice, Justice Department and State Partners Secure $1.375 Billion Settlement
with S&P for Defrauding Investors in the Lead Up to the Financial Crisis (Feb.
3, 2015)
(http://www.justice.gov/opa/pr/justice-department-and-state-partners-secure-1375-billion-settlementsp-defrauding-investors);
USA Today, Critics Blast Justice Department’s S&P Settlement (Feb. 3, 2015)
(http://www.usatoday.com/story/money/business/2015/02/03/sp-settlement-14b-wrongdoing-change/22808017/).
13) New York Times, Rigging
of Foreign Exchange Market Makes Felons of Top Banks (May 20, 2015) (http://www.nytimes.com/2015/05/21/
14) Bloomberg, Deutsche
Bank to Pay Record $2.5 Billion to Resolve LIBOR Probes (Apr. 23, 2015)
(http://www.bloomberg.com/news/articles/2015-04-23/deutsche-bank-to-pay-record-2-5-billion-to-resolve-libor-probes);
Department of Justice, Deutsche Bank’s London Subsidiary Agrees to Plead Guilty
in Connection with Long-Running Manipulation of LIBOR (Apr. 23, 2015)
(http://www.justice.gov/opa/pr/
15) Wall Street
Journal, Deutsche Bank to Pay $2.5 Billion to Settle Libor Investigation (Apr.
23, 2015); (http://www.wsj.com/articles/deutschebank-settles-libor-investigation-with-u-s-u-k-authorities-1429791118).
16) Bloomberg, Deutsche
Bank Staff Probed Over LIBOR by Frankfurt Prosecutors (June 29, 2015)
(http://www.bloomberg.com/news/articles/2015-06-29/deutsche-bank-staff-probed-over-libor-by-frankfurt-prosecutors).
17) Wall Street
Journal, Deutsche Bank to Pay $2.5 Billion to Settle Libor Investigation (Apr.
23, 2015); (http://www.wsj.com/articles/deutschebank-settles-libor-investigation-with-u-s-u-k-authorities-1429791118).
18) Law360, SEC
Grants Deutsche Bank WKSI Waiver After Guilty Plea (May 6, 2015)
(http://www.law360.com/articles/651174/sec-grantsdeutsche-bank-wksi-waiver-after-guilty-plea).
19) New York Times, An
S.E.C. Settlement With Citigroup That Fails to Name Names (Aug. 28, 2015)
(http://www.nytimes.com/2015/08/30/business/sec-settlement-with-citigroup-holds-no-one-responsible.html).
20) New York Times, An
S.E.C. Settlement With Citigroup That Fails to Name Names (Aug. 28, 2015)
(http://www.nytimes.com/2015/08/30/business/sec-settlement-with-citigroup-holds-no-one-responsible.html).
21) Wall Street
Journal, Deutsche Bank Agrees to Pay $55 Million to SEC (May 26 ,2015)
(http://www.wsj.com/articles/deutsche-bank-agreesto-pay-55-million-to-sec-1432651289);
Bloomberg, Deutsche Bank to Pay $55 Million to Settle Derivatives Probe (May
26, 2015) (http://www.bloomberg.com/news/articles/2015-05-26/deutsche-bank-to-pay-55-million-to-settle-sec-derivatives-probe);
Securities and Exchange Commission, SEC Charges Deutsche Bank With Misstating
Financial Reports During Financial Crisis (May 26, 2015) (http://www.sec.gov/news/pressrelease/2015-99.html).
22) Bloomberg, JP
Morgan Admits It Didn’t Tell Clients About Conflicts (Dec. 18, 2015)
(http://www.bloomberg.com/news/articles/2015-12-18/
jpmorgan-pays-267-million-to-settle-conflict-of-interest-claims).
23) Bloomberg, JP
Morgan Admits It Didn’t Tell Clients About Conflicts (Dec. 18, 2015)
(http://www.bloomberg.com/news/articles/2015-12-18/
24) Bloomberg, JP
Morgan Said to Win Relief in SEC Case on Sale of Its Own Funds (Dec. 10, 2015)
(http://www.bloomberg.com/news/
25) New York Times, Why
Investors Are Right to be Distrustful (Dec. 23, 2015)
(http://www.nytimes.com/2015/12/23/opinion/why-investors-areright-to-be-distrustful.html?ref=opinion&_r=0).
26) Department of
Justice, For-Profit College Company to Pay $95 Million to Settle Claims of
Illegal Recruiting, Consumer Fraud, and Other Violations (Nov. 16, 2015)
(http://www.justice.gov/opa/pr/profit-college-company-pay-955-million-settle-claims-illegal-recruiting-consumerfraud-
27)
Department of
Justice, (Justice Department Reaches $60 Million Settlement with Sallie
Mae to
Resolve Allegations of Charging Military Service members Excessive
Rates on
Student Loans) (May 13, 2014)
(www.justice.gov/opa/pr/justice-department-reaches-60-millionsettlement-sallie-mae-resolve-allegations-charging);
FDIC, (FDIC Announces Settlement with Sallie Mae for Unfair and
Deceptive
Practices and Violations of the Servicemembers Civil Relief Act) (May
13, 2014)
(www.fdic.gov/news/news/press/2014/pr14033.html).
28) Senator
Elizabeth Warren, (An Analysis of the Department of Education’s Review of
Student Loan Servicers Compliance with the
Servicemembers Civil
Relief Act) (August 2015).
29) New York Times, Many
Messages in the GM Settlement (Sep. 21, 2015)
(http://www.nytimes.com/2015/09/22/business/dealbook/manymessages-in-the-gm-settlement.html).
30) Corporate Crime
Reporter, Critics Rip GM Deferred Prosecution Agreement in Engine Switch Case (Sep.
17, 2015) (http://www.
corporatecrimereporter.com/news/200/critics-rip-gm-deferred-prosecution-in-switch-case/#sthash.JSSOCK0E.dpuf).
31) Detroit News,
(U.S. Fines Honda Record $70 Million for Safety Lapses) (Jan. 8, 2015)
(http://www.detroitnews.com/story/business/autos/foreign/2015/01/08/honda-fine/21444089/).
32) New York Times, Honda
Fined for Violations of Safety Law, (Jan. 8, 2015)
(http://www.nytimes.com/2015/01/09/business/honda-fined-70-
33)
National Highway
Traffic Safety Administration, U.S Transportation Secretary Foxx
Announces $10
Million Civil Penalty Against Child Car Seat Manufacturer (Mar. 20,
2015)
(http://www.nhtsa.gov/About+NHTSA/Press+Releases/2015/Car-seat-maker-Graco-fined-$10-million).
34) New York Times, Graco
to Pay $10 Million for Delay in Recall of Defective Child Seats (Mar. 20, 2015)
(http://www.nytimes.com/2015/03/21/business/graco-to-pay-10-million-for-delay-in-recall-of-defective-child-seats.html).
35) New York Times, Mixed
Verdict for Donald Blankenship, Ex-Chief of Massey Energy, After Coal Mine
Blast (Dec. 3, 2015) (http://www.nytimes.com/2015/12/04/us/donald-blankenship-massey-energy-upper-big-branch-mine.html).
36) Charleston
Gazette-Mail, After Blankenship Trial, Seeking Stiffer Penalties for Mine
Safety Crimes (Dec. 4, 2015) (http://www.wvgazettemail.com/article/20151204/GZ15/151209762/).
37) Occupational and
Safety Health Administration, Deaths Of Four Workers Prompts Deeper Look At
Dupont Safety Practices (July 9, 2015) (https://www.osha.gov/newsrelease/reg6-20150709.html).
38) USA Today, OSHA
Adds DuPont to Severe Violator List After Leak (July 13, 2015)
(http://www.usatoday.com/story/money/
39) Department of
Justice, ExxonMobil to Pay $5 Million to Settle U.S. and Arkansas Claims for
2013 Mayflower Oil Spill (Apr. 22, 2015) (http://
40)
Inside Climate News, Exxon’s Deal for Arkansas Pipeline Spill
Leaves Water
Vulnerable, Groups Warn. (July 28, 2015)
(http://insideclimatenews.org/news/28072015/exxon-mobil-deal-mayflower-arkansas-pipeline-oil-spill-leaves-water-vulnerable-groups-warn-tarsands-diblit).
41) Washington
Examiner, Bayer to Pay $5.6 Million in Settlement with EPA (Sep. 21, 2015)
(http://www.washingtonexaminer.com/bayer-to-pay-
5.6-million-in-settlement-with-epa/article/2572548);
EPA, Bayer Cropscience to Enhance Safeguards at Chemical Facilities in
Four
States to Settle Violations at W.V. Plant (Sep. 21, 2015)
(http://yosemite.epa.gov/opa/admpress.nsf/0/FB43A837CDBE194085257EC7006D9F46);
Associated Press, Bayer Cropscience Settles For $5.6M Over Deadly Blast
(Sep.
21, 2015) (http://bigstory.ap.org/
42) Department of
Justice, U.S. and Five Gulf States Reach Historic Settlement with BP to Resolve
Civil Lawsuit Over Deepwater Horizon Oil Spill (Oct. 5, 2015)
(http://www.justice.gov/opa/pr/us-and-five-gulf-states-reach-historic-settlement-bp-resolve-civil-lawsuit-over-deepwater).
43) Paul
Caron,
Pepperdine University School of Law, TaxProfBlog, BP Settlement
Generates $15
Billion Tax Deduction (Oct. 6, 2015)
(http://taxprof.typepad.com/taxprof_blog/2015/10/bp-settlement-generates-15-billion-tax-deduction.html).
44) Sen. Elizabeth
Warren, Broken Promises: Decades of Failure to Enforce Labor Standards in Free
Trade Agreements (May 2015) (http://www.warren.senate.gov/files/documents/BrokenPromises.pdf).
45) Cornell
International Law Journal, Reality Check: The U.S. Labor Action Against
Guatemala (2014) (http://cornellilj.org/reality-check-the-u-slabor-action-against-guatemala/).
46) Environmental
Investigation Agency, USTR Fails to Implement and Enforce Key U.S.-Peru FTA
Provisions (June 4, 2015) (http://eia-global.
47) Environmental
Investigation Agency, USTR Fails to Implement and Enforce Key U.S.-Peru FTA
Provisions (June 4, 2015) (http://eia-global.org/news media/failure-to-implement-and-enforce-key-us-peru-fta-provisions).
48)
AFL-CIO, Despite
Labor Action Plan, Colombian Unionists Still Targeted for Death (Apr.
7, 2015)
(http://www.aflcio.org/Blog/Global-Action/Despite-Labor-Action-Plan-Colombian-Unionists-Still-Targeted-for-Death).
49)
Department of
Justice, Manhattan U.S. Attorney Announces $370 Million Civil Fraud
Settlement
Against Novartis Pharmaceuticals For Kickback Scheme Involving
High-Priced
Prescription Drugs, Along With $20 Million Forfeiture Of Proceeds From
The
Scheme (Nov. 20, 2015)
(http://www.justice.gov/usao-sdny/pr/manhattan-us
attorney-announces-370-million-civil-fraud-settlement-against-novartis);
Law360, Five Takeaways From the Novartis FCA Settlement (Nov. 1, 2015)
(http://www.law360.com/articles/720152/5-takeaways-from-the-novartisfca-settlement).
In rare
admission of guilt,
MoneyWatch
By Kate Gibson
May 20, 2015
U.S. Attorney General Loretta Lynch announced
a resolution has been reached with global financial institutions in connection
with long-running manipulation of the $5 trillion-a-day Foreign Exchange
(FOREX) spot market during a news conference at the Robert F. Kennedy Justice
building on May 20, 2015, in
Five of the world's largest banks have plead
guilty to federal charges including manipulating the global foreign exchange
market and rigging a benchmark interest rate that affects the cost of credit
card, vehicle and other loans.
Citicorp (C), JPMorgan Chase (JPM), Barclays
(BCS) and Royal Bank of Scotland (RBS) agreed to pay more than $5 billion for
conspiring to fix the price of U.S. dollars and euros, the Justice Department
said Wednesday. The main banking unit of UBS Group plead guilty to charges tied
to interest-rate manipulation.
The settlements capped a multi-year probe by
federal and state prosecutors into Wall Street firms' currency trading
practices. Some of the evidence presented by the government highlights how
banks colluded to rig financial markets. Traders, referring to themselves as
members of "The Cartel," talked about their positions just ahead of
setting rates, the government said.
"Almost every day for five years, they
used a private electronic chat room to manipulate the exchange rate between
euros and dollars using coded language to conceal their collusion,"
Attorney General Loretta Lynch said at a news conference to announce the
settlements. "They acted as partners rather than competitors to push the
exchange rate in directions favorable to their banks, but detrimental to many
others."
Citicorp, which prosecutors said was involved
in manipulating currencies from late 2007 to at least early 2013, agreed to pay
$925 million. Barclays will pay $650 million; JPMorgan, $550 million; and RBS,
$395 million.
Under the settlement, Barclays admitted that
its currency trading, sales practices and collusive conduct violated a June
2012 non-prosecution agreement resolving the Justice Department's investigation
of the manipulation of the London Interbank Offered Rates and other benchmark
interest rates. It agreed to pay an additional $60 million criminal penalty.
The agreements bring to about $9 billion the
total fines and penalties paid by the five banks to settle the currency probes.
Unlike previous settlements that followed the 2009 financial crisis, however,
Wednesday's agreements required banks to admit guilt, noted Robert Hockett, a
"And with similar investigations into
benchmark interest rate and precious metal price manipulation schemes still
underway, there are likely to be more such to come," he said.
In acknowledging their companies' role in the
fraud described by the Justice Department, the leaders at all five of the banks
sought to pin the troubles on rogue employees, attributing the misconduct to
individuals no longer employed with the firms.
In a statement, JPMorgan said the conduct
that led to the government's antitrust charge was "principally
attributable to a single trader," since dismissed from the bank. "The
conduct of a small group of employees, or of even a single employee, can
reflect badly on all of us, and have significant ramifications for the entire
firm," Jamie Dimon, JPMorgan's chairman and CEO, said in a news release.
Citi's internal probe "has so far
resulted in nine terminations and additional disciplinary actions,"
Michael Corbat, chief executive officer of Citi, said in a statement, while RBS
chairman Philip Hampton also pointed at a handful of people at the Scottish
banking giant as being responsible for manipulating markets.
Echoing this line, UBS leaders said that
"The conduct of a small number of employees was unacceptable and we have
taken appropriate disciplinary actions."
Wall Street critics reject the view that
malfeasance on Wall Street, including recent evidence of market manipulation,
is attributable to a few bad apples.
Dennis Kelleher, CEO of Better Markets, a
nonprofit group that advocates for more transparency in markets, dismissed the
settlements as part of an ongoing "charade," decrying a failure by
prosecutors following the housing crash to hold individuals accountable.
"Banks don't commit crimes, bankers do.
Until the feds personally and meaningfully punish actual executives and
supervisors for their wrongdoing, big banks will continue their crime spree at
the expense of investors, our markets, and families on