Wednesday Jun 20

Everybody’s Business: Portraying Corporate Villains as Victims

It's unclear to what extent the Obama Administration’s practice of extracting unprecedented monetary penalties on miscreant companies proved to be an effective deterrent. After all, big business did not exactly become squeaky clean. But at least the numerous billion-dollar fines and settlements served to highlight the ongoing problem of corporate crime.

The Trump Administration seems to be a lot less interested in cracking down on the most egregious corporate offenders. Although the enforcement arms of agencies such as Occupational Safety and Health Administration and Environmental Protection Agency are still operating along normal lines, there has been a sharp decline in the number of mega-penalty cases announced by the Trump Justice Department.

This conclusion emerges from an analysis of the data added to the Violation Tracker database covering cases through the end of the Trump Administration’s first year in office on January 19.

Since the largest penalties are normally imposed on the largest corporations, I did an analysis focusing on the Fortune 100 list of the very largest U.S. publicly traded companies. I found that overall federal penalties imposed on these firms during Trump’s first 12 months totaled $1.1 billion, compared to an annual average of more than $17 billion during the Obama years.

The Obama totals, of course, reflected extraordinary settlements with the largest banks to resolve allegations relating to their role in bringing about the financial meltdown of a decade ago. These included, for example, the $16 billion settlement with Bank of America in 2014 and the $13 billion settlement with JPMorgan Chase the year before.

Those financial services sector settlements peaked during the middle years of the Obama era. Yet Trump’s $1.1 billion first-year total is still far below the annual average of more than $9 billion for the Fortune 100 during Obama’s final two years in office. It also trails behind the $3 billion total during Obama’s first year.

Although these numbers focus on the Fortune 100, a similar trend can be seen when looking at a larger universe of companies. Taking into account all corporate offenders, the penalty total during Trump’s first year was down more than 60 percent from the annual average of the Obama years and down more than 70 percent from Obama’s final year.

The drop-off is most dramatic in connection with the largest individual penalties. There were 44 cases with penalties of $1 billion or more during the Obama era yet only two during Trump’s first year, and he doesn’t really deserve credit for those. One is the $5.5 billion settlement reached by the Federal Housing Finance Agency with the Royal Bank of Scotland relating to the sale of toxic securities to Fannie Mae and Freddie Mac. That case had been filed in 2008, and the settlement had been negotiated under Obama. The other is a $1.4 billion penalty against Volkswagen for its emissions cheating that appears in EPA records with a date of May 17, 2017 but was actually part of a larger $4.3 billion settlement with VW announced by the Justice Department during the last days of the Obama Administration.

There is also an interesting pattern among Trump Administration penalties in the next tier down—those between $100 million and $1 billion. The parent companies involved in about two-thirds of these cases are foreign, especially those with the largest penalty totals. They include the Chinese telecom company ZTE, which was penalized for export control violations, and the Swedish telecom Telia, which was punished under the Foreign Corrupt Practices Act. It appears that the Trump Administration is slightly more likely to get tough with a corporate violator if the company is not based in the United States.

Deutsche Bank is a more complicated story. The German financial giant was fined $425 million by New York State regulators for anti-money laundering deficiencies said to be connected to the illicit transfer of more than $10 billion out of Russia, yet an expected related criminal case by DOJ has yet to materialize. That may have something to do with the fact that Deutsche Bank’s name keeps popping up in connection with Trump’s personal financial dealings. Not long after Trump took office a Deutsche Bank subsidiary was sentenced to pay $150 million in connection with allegations that it manipulated foreign exchange markets, but that stemmed from a guilty plea the company had entered two years earlier.

When Jeff Sessions took over the Justice Department there was some speculation that he would be tough on corporate crime. That has been far from the case.

Philip Mattera heads the Corporate Research Project in Washington, DC, and writes the blog Dirt Diggers Digest.

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