Saturday Feb 24

EVERYBODY’S BUSINESS - Getting Tougher on Corporate Safety Scofflaws

For most of its history, the Consumer Product Safety Commission has not been the most aggressive regulator. Created in 1972, the agency has depended primarily on voluntary recalls of dangerous products by manufacturers. Its budget is below $200 million and its staff numbers around 500, both tiny by federal government standards.

While the CPSC has the ability to use monetary penalties when companies fail to disclose hazards, it is relatively restrained in its use of that power. The agency has imposed a total of $397 million in fines against companies since 2000. More than half of those fines have come since the Biden Administration took office. By comparison, the Consumer Financial Protection Bureau, which started operating in 2011, has racked up more than $17 billion in fines and settlements.

For all these reasons, it is significant that the CPSC and the Justice Department announced in November that a federal jury in Los Angeles had returned a guilty verdict in the first-ever criminal prosecution brought against corporate executives under the Consumer Product Safety Act.

The defendants in the case were the chief administrative officer and the chief executive officer of Gree USA, Inc., a subsidiary of the Chinese-owned Hong Kong Gree Electric Appliances Sales Co. The two men were charged with deliberately withholding information about defective dehumidifiers that could catch fire and selling these units with false certification marks that the products met applicable safety standards. They were convicted of conspiracy to defraud the CPSC and failure to meet reporting requirements, though they were acquitted of wire fraud.

Gree itself has also been targeted by the CPSC. The company has paid more in fines to the agency than any other company over the past two decades. That includes a $91 million penalty that was by far the CPSC’s largest single fine during this period. It was also the first criminal enforcement action under the Consumer Product Safety Act.

The impact of that was softened by the decision of the Justice Department to offer Gree a leniency deal in the form of a deferred prosecution agreement by which the company was able to avoid pleading guilty to the charges.

On the other hand, DOJ and CPSC took the bold step of going after the two Gree officials individually. It took four years from the time the two men were indicted, but their conviction sends a powerful message to executives that they can be held personally responsible for brazen disregard of product risks. The Gree executives are scheduled to be sentenced next March and could receive up to five years in prison.

Product safety is not the only area in which federal regulators and prosecutors have been getting tougher. Also in 2023, the Justice Department won a guilty verdict against two officials at Didion Milling. In 2017 a dust explosion at a corn mill operated by the company in Cambria, Wisconsin killed five workers and seriously injured others.

Didion’s vice president of operations was convicted of conspiring to falsify documents, making false environmental compliance certifications and obstructing the Occupational Safety and Health Administration investigation of the explosion. The former safety superintendent was convicted of conspiring to obstruct and mislead OSHA by falsifying sanitation records concerning the accumulation of corn dust at the mill.

The company was also prosecuted. In September 2023, it pleaded guilty to falsifying records related to its Occupational Safety and Health Act and Clean Air Act obligations. Didion agreed to pay $1 million in criminal fines and pay $10.25 million in restitution to the victims of the accident and their families.

The Didion facility had been cited by OSHA for dust explosion hazards well before the explosion. In 2011 it was fined all of $6,300—which it negotiated down to $3,465. It appears that Didion then began keeping false records, while OSHA was kept in the dark about the increasingly dangerous conditions at the mill.

It is no secret that corn dust is highly combustible and needs to be reduced through careful sanitary practices. Didion and its managers decided to sidestep these practices and instead falsify records to conceal their reckless behavior.

The debate over how to deal with corporate crime is often framed as a choice between penalizing the company and prosecuting executives. The Gree case shows the value of using both approaches at the same time. That makes it more likely the message will get through to rogue companies that they need to change their practices in a fundamental way.


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