Profits over People: Offenders in High Places

 

A recent headline tells it all: “General Motors will pay $900 million to settle criminal charges related to its flawed ignition switch that has been tied to at least 124 deaths.”[1] The problem was that the ignition switch could shut off the car while it was being driven, therefore causing the disabling of the airbag, power steering and power brakes, obviously putting both drivers and passengers at risk. GM knew about this almost a decade ago but did not begin to recall the cars until 2014. At least 124 people died because of this defect.  Part of the legal problem is that technically “it isn't illegal to sell a car that has a defect that can kill people,” says U.S. Attorney Preet Bharara. The way the law is written “makes it difficult to prosecute individuals or to impose greater penalties on a company.” GM has set up a compensation plan totaling over $600 million to victims and their families. GM was fined $35 million to settle civil charges with federal safety regulators. For GM, this is a familiar story (see below).

          This was similar to the famous Ford Pinto case in the 1960s concerning a defective fuel system design,[2] when Ford did a “cost-benefit” analysis and found that to correct the problem would have cost them $11 per car, even though a new design would result in 180 fewer deaths. Specifically, Ford found that it would have cost them $137 million compared to a $49.5 million price tag put on the deaths, injuries, and car damages. Thus they stood to gain $87.50 million not to fix the problem.[3]

          This is merely the latest in a long line of cases of corporate crime. In 2014 Toyota agreed paid $1.2 million because of its failure to recall cars despite reports of unintended acceleration.[4] In 2013 JPMorgan Chase agreed to pay record $13 billion fine to settle criminal charges related to the sale of mortgage backed securities ahead of the 2008 financial crisis.[5]       

This is Nothing New  

There are a variety of behaviors that are illegal in the United States, ranging from the inconsequential to grievously damaging to society. Not all behaviors that threaten the well-being of U.S. citizens are treated as criminal. Even some that are illegal are not widely investigated, nor are they counted by the measures of crime reviewed earlier. There is a great deal more to crime than what is described by the UCR and NCVS. An alternative view of crime and the extent of crime presents a radically different picture than that provided by the media and official statistics.

Who are the “dangerous” people in society? Who threatens us with death and serious bodily injury? Who puts our money or property at risk? There is no question that we would be frightened if a robber confronted us on the street or if we came home and discovered that a stranger had broken into our house. We do not want to downplay the significance of traditional crimes of violence. These are, however, only part of the total crime picture.

Statistically speaking, the gravest threats to us are not from robbers, burglars, rapists, or others threatening one-on-one harm. The FBI compiles “crime clock” statistics from the data it collects annually. In 2013, the crime clock listed violent crimes as occurring every 27 seconds and a murder every 37 minutes.[6] However, it has been estimated that in 2013 4,585 workers were killed on the job or about 88 per week and 12 each day from an occupational injury or from diseases they contracted through their employment.[7] Another source reports 3.1 million nonfatal workplace injuries and illnesses per year.[8] Occupational diseases, death, and injuries cost us around $155 billion each year, dwarfing the crimes shown on television.[9] Importantly, about half of these workplace harms are preventable. They could be avoided if employers complied with various state, federal, and local laws and regulations.[10]

Categories of Corporate Crime

Corporate crime involves two primary categories: corporate violence and corporate abuse of power, fraud, or economic exploitation.

Corporate violence: Violence committed by corporations usually does not involve direct harm. Instead, it exposes people to harmful conditions, products, or substances over time.[11] For example, the manufacture of faulty tires is not immediately apparent, but the eventual deterioration will cause injury. Corporate violence tends to involve many people working collectively rather than a single offender. Corporate practices, policies, and procedures can and often do have life-threatening consequences. For example, corporate environmental practices can cause various forms of cancer and other life-threatening diseases. Each year, the manufacture of unsafe foods, products, and medicine injures millions of Americans and kills tens of thousands.

“Twenty Nine Dead and Alpha Gets a Non Prosecution Agreement” was the headline of a story about an explosion at the Upper Big Branch mine in Montcoal, West Virginia, that killed 29 and injured two.[12] In a deal with the prosecutors the parent company, Alpha Natural Resources, will pay a $209 million fine as part of a “non-prosecution” agreement with the company. The mine was owned by Massey Energy Company at the time and has since been purchased by Alpha.  A “non-prosecution” has become a standard response to corporate crime.  It allows the corporation to escape criminal prosecution and alleviates negative images of the enterprise and damage to its reputation. 

Jane Barrett wrote about the violent deaths of 47 people in April 2010. They did not die because they were shot, drugged, or stabbed; they died because they went to work and were doing their jobs. The companies they worked for—Massey Energy, British Petroleum, and Tesoro Corporation—“gambled with their lives.”[13]  All three companies are engaged in heavily regulated industries and are required to have operation and maintenance procedures to prevent the types of disasters that took place. British Petroleum and Massey were repeat offenders, but the corporate criminal convictions and fines did not deter subsequent violations. No agent, officer or director of the organizations were charged with a crime. She advocates the use of criminal law to hold people responsible for the deaths of innocent victims. “For too long, industrial disasters have been ignored or minimized, labeled as unfortunate and unpreventable accidents, with no one responsible for either the event or the consequences.”[14] She points out that there has been an increase in the number of individuals prosecuted for financial fraud crimes, but there has been no corresponding growth in prosecuting individuals for the crimes at refineries and mines. She concludes, “This history of recent white collar prosecutions could be interpreted as sending the following message: if you gamble with someone’s money, you can go to jail; if you gamble with someone’s life, your company will pay a fine, and it might not even be a criminal fine.”[15]

 

Violence Against Employees

It is important to note that we are not arguing that all work accidents and deaths are deliberate. Some are truly accidental. Others, however, were allowed to occur with malice aforethought and recklessly endangered employees or consumers. Consider these examples:

Massey Energy: An explosion at the Upper Big Branch Mine in Raleigh County, WV killed 29 miners in 2010. Officials at the Upper Big Branch Mine knowingly conspired to violate safety laws and worked to hide violations by warning of surprise inspections. The violations are believed to have played a role the explosion.[16]

Imperial Food Products: Managers at the Imperial Foods processing plant locked fire escapes to prevent employees from stealing chicken nuggets. A fire spontaneously began and workers in the factory could not escape due to the locked doors. Fifty-three were injured and 25 died trying to escape. The plant owner pled guilty to 25 counts of involuntary manslaughter. He was paroled after just 4 years.[17]

CH2M Hill Hanford Group Inc. (CHG): The Colorado-based company admitted to “defrauding the public by engaging in years of widespread time card fraud.” The company entered into a non-prosecution agreement with the government under which it consented to a corporate monitor and will actively cooperate in the ongoing fraud investigation. It will pay $18.5 million and will commit an additional $500,000 toward an improved accountability system.[18]

Wal-Mart: In a case that is remarkably similar to the Triangle Shirtwaist Fire of 1911 in which 146 workers who were trapped in the building perished, a fire in a garment factory in Bangladesh (Wal-Mart buys $1 billion in garments from Bangladesh each year) killed 112 workers who were trapped and killed in November 2012. “The company has also drawn international attention to lack of oversight over unsafe working conditions in a country that is rapidly climbing up the ladder of the global supply chain of contractors and sub-contractors that produce goods for multinational retailers. Indeed, since 2006 over 300 people have died in similar factory fires in Bangladesh.”[19]

BP Oil: In 2010, an explosion on an oil rig in The Gulf of Mexico took eleven lives. For three months, oil spewed into the Gulf doing untold damage to Marine life. BP was cited for making “cost cutting” decisions rather than protecting the safety of the rig and the workers.[20]

In March 2005, fifteen workers died in an explosion at BP’s refinery in Texas City, Texas. It was the third fatal accident at that facility in four years. BP admitted “mistakes” and took responsibility for the explosion. Under Texas law, executives could be charged with reckless homicide or involuntary manslaughter. This leading death penalty state, however, declined to file any charges.[21]

Violence Against Consumers       

Table 2.4 provides a small sampling of the deaths and injuries caused by corporate violence. Crimes of violence are not limited to the interpersonal. Much of the violence occurs through the sale and manufacture of unsafe products. For example:

Merck: The pharmaceutical company Merck manufactured Vioxx, a drug designed to treat arthritis. The company’s early clinical trials revealed high risks of heart attack and stroke in patients using the drug. The company ignored the risks, and the drug was widely marketed and prescribed to patients. The FDA estimates that between 88,000 and 139,000 people suffered heart attacks or stroke after taking the drug, and 60,000 died.[22]

Thalidomide: was prescribed to pregnant women in the late 1950s and early 1960s to combat morning sickness. It caused extreme birth defects in the babies born to users. The children were born without limbs and many received compensation only recently. In 2012, the Grünenthal Group released an apology to everyone affected by the drug. To many survivors, the apology came too late.[23]

General Motors trucks: GM produced trucks with twin saddle gas tanks in the 1970s and 1980s. More than 9 million were sold and many are still in use. Hundreds of people have died when collisions caused the gas tanks to explode.[24] In 2014, the company recalled 6 million vehicles because the ignition switch failed while driving, disabling power steering, anti-lock brakes, and air bags.[25] At least 13 people died because of the defect.

Ford Pinto: As noted above, Ford produced the small, fuel efficient Pinto and sold it to consumers despite knowing that the cars could explode upon rear impact. They ignored the threat in favor of larger profits and allowed many to die.

Nap Nanny: Baby Matters, LLC produced recliners for infants that contained defects in “design, warnings and instructions.” The U.S. Consumer Product Safety Commission lodged a complaint against the company, but only after 5 babies had died.[26]

Apple Juice: Odwalla, Inc., the beverage company, pled guilty in 1996 to violating federal food safety laws and selling contaminated apple juice that killed a 16-month old girl and injured at least 70 others. The company paid a $1.5 million fine, the largest criminal fine for a food injury case in the history of the Food and Drug Administration and the first such criminal conviction.

Deaths from occupational diseases, such as black lung and asbestosis, and deaths from pollution, contaminated foods, hazardous consumer products, and hospital malpractice do violence to thousands of Americans each year and are often the result of criminal recklessness. The workers who have died in preventable accidents, the children who have died from cancer due to dumping of toxic waste, and the people who died because they trusted that their cars were safe are just as dead (and their deaths just as painful to loved ones) as if they had died at the hands of a street criminal.

Corporate theft: Many of the crimes of corporations have an economic impact rather than violent consequences. David Friedrichs comments: “Direct economic losses from all forms of white collar crime are immense and dwarf those of conventional crime.”[27] The property crimes reported to the FBI cost the American people an estimated $4 billion per year. Estimates of white collar crime range from $300 to $660 billion—to $1 trillion annually. White collar crime includes employee theft (estimated as higher than $500 billion a year) in addition to corporate crimes.

The methodological challenges in estimating the economic cost of white collar crime such as environmental pollution, the sale of products that do not meet safety standards and unfair labor practices are significant.[28] In many cases hard data are difficult to obtain. The fines paid by corporations, while representing only those who have been caught, do provide hard data.

The list of corporate crimes includes bribery of government officials, defense contract fraud, health care provider fraud, corporate tax evasion, price-fixing, false advertising, product misrepresentation, cheating workers out of overtime pay, violations of minimum wage laws, unfair labor practices, surveillance of employees, theft of trade secrets, monopolistic practices, and defrauding investors.[29] While the list of crimes increases, the corporate share of the tax burden has been declining. Individuals now pay 5 times the more taxes than corporations, down from around 25% in the 1950s to less than 10% today.[30]

In the year 2011 alone, there were 100 separate stories of corporate crime.  Among those included are:

Chevron to Pay $24 Million to Settle SEC Lawsuit; Maxim Healthcare Gets Prosecution Deferred, to Pay $150 Million; Accenture to Pay $68 Million to Settle False Claims Charge; Amoco to Pay $20 Million to Settle False Claims Charge; Oracle to Pay $199 Million to Resolve False Claims Charge; Pfizer to Pay $14 Million to Settle False Claims Charge; Glaxo to Pay $3 Billion to Settle False Claims Charge; JP Morgan Chase to Pay $92 Million in Bid Rigging Case; Fluor Corporation to Pay $4 Million to Settle False Claims Charge; Anadarko, Kerr-McGee To Pay $17 Million to Settle False Claims Charge.[31]

 

 The total estimated amount of money involved in insider-trading cases from 2000–2010 amounted to just over $400 million.[32]  The leading offender in this group was the former CEO of Countrywide Financial, Angelo Mozilo He was accused in 2009 by the Securities Exchange Commission of selling $140 million of Countrywide stock based upon information not available to the public. Kenneth Lay came in second with $90 million in 2004.  Ranked third was Raj Rajaratnam, former chief of the Galleon Group, accused of a $52 million fraud. Bernie Madoff was the worst of the bunch, having bilked investors out of about $50 billion.

Corporate crime is not new. Edwin Sutherland discussed the extent of corporate crime in his classic book White Collar Crime in 1949. He focused on law violations by 70 corporations and found a total of 980 specific violations, about one-third of which were restraint of trade.[33] About 20 years later another study found that over a two-year period more than 60% of the 582 largest corporations had at least one violation. Automobile, oil refining, and drug companies accounted for about one-half of all violations.[34] At about the same time a very detailed case study of a mining company discovered that for several years it had used a nearby stream to dump waste material, which eventually piled up to produce a large dam with a lake behind it. The dam eventually collapsed during a rainstorm, resulting in the deaths of 125 people and, almost literally, wiping out an entire community. Most of the people who died had worked for the company.[35]

Finally the economic collapse of 2008 was caused by corporate negligence and fraud. Pending corporate fraud cases went from 423 in 2005 to 726 in 2011. During that year, the FBI secured $2.4 billion in restitution orders and $16.1 million in fines from corporate criminals involved in health care fraud, mortgage fraud, financial institution fraud, insurance fraud, mass marketing fraud, and asset forfeiture/money laundering.[36]

How do we explain this?

Criminologists arrived at several theories in an attempt to explain corporate crime. One is subcultural theory which focuses on the “workplace subculture” which encourages deviant activities in order to increase profits. Various problems they face often require solutions that are not available or allowed by the law.

Sutherland’s famous “differential association” theory is often cited because corporate executives associate with those who hold definitions favorable to violating laws and it is a gradual learning process involving continuous interaction with others within the corporate structure.[37]

Finally, there’s anomie theory which cites the pressures to increase profits causes much strain among corporate executives.  This often results in using various innovative, illegitimate means to achieve the goal of profit.[38]

A more structural view holds that “Corporate crime originates in the logics of the economic system. The emphasis on profit take first place over the interests of worker safety, community needs, consumer health or those who are exposed to hazardous wastes materials. It is simply cheaper to put people at risk than to protect them.”[39]

Each of these perspectives has something to offer by way of an explanation.  There is little doubt, however, that the corporate system is highly criminogenic. It is directly related to the very nature of capitalism. One crucial difference between the capitalist system and other systems is the drive for profit, which can be almost an obsession. Robert Heilbroner aptly defines this unique feature of capitalism as “the restless and insatiable drive to accumulate capital.” The possession of capital “confers on its owners the ability to direct and mobilize the activities of society.” Control over capital gives people more than prestige and distinction; access to capital is power. Moreover, wealth itself becomes a social category inseparable from power. Wealth can only come into existence when the right of access of all members of society to an independent livelihood no longer prevails, so that control over this access becomes of life-giving importance. Quoting Adam Smith, Heilbroner gets to the essence of capitalist society, especially in modern U.S. society: “Wherever there is great property, there is great inequality. For one rich man, there must be at least five hundred poor, and the affluence of the rich supposes the indigence of the many.”[40]

Power and control are distinctive characteristics in a capitalist system. The desire to have power and control over others permeates throughout the society, whether we are talking about owners of large multinational corporations or leaders of drug gangs trying to maintain power and control over their local “drug markets.” It is essentially the same phenomenon, although on much different scales. There seems to be an insatiable desire to continue “converting money into commodities and commodities into money.” Everything is turned into a commodity—from the simplest products (e.g., paper and pencil) to human beings (e.g., women’s bodies, slaves). More importantly, the size of one’s wealth has no bounds. “Daily life is scanned for possibilities that can be brought within the circuit of accumulation,” since any aspect of society that can produce a profit will be exploited, including the misery and suffering of people who have been victimized by crime.[41] Life itself has been “commodified.”[42] 

Unless the regulations that were set up back in the 1930s can be reinstituted, GM and others will continue their criminal behavior.  They are the classic recidivists. And since they essentially control the country and shape the legal system in their favor, the public will continue to suffer.

 Notes


[1] CNN Money, September 17, 2015. Retrieved from: http://money.cnn.com/2015/09/17/news/companies/gm-recall-ignition-switch/index.html.

[2] Leggett, C. (1999). The Ford Pinto Case: The Valuation of Life as it Applies to the Applies to the Negligence-Efficiency Argument.” Retrieved from: http://users.wfu.edu/palmitar/Law&Valuation/Papers/1999/Leggett-pinto.html.

[3] See also, Dowie, M. (1977). “Pinto Madness.” Mother Jones, September/October.  Retrieved from: http://www.motherjones.com/politics/1977/09/pinto-madness.

[4]  Perez, E. and S. Prokupecz (2014). “Toyota to settle Justice Department probe over unintended acceleration.” CNN, March 19, 2014. Retrieved from: http://www.cnn.com/2014/03/18/us/toyota-settlement/index.html?iid=EL; (2013). “Toyota settles acceleration case after $3 million jury verdict.” CNN Money, October 25. Retrieved from: http://money.cnn.com/2013/10/25/news/companies/toyota-crash-verdict/?iid=EL.

[5]

[6] Federal Bureau of Investigation, Crime in the United States, 2013 “Crime Clock Statistics.” Retrieved from: https://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2013/crime-in-the-u.s.-2013/offenses-known-to-law-enforcement/crime-clock.

[7] These figures are from the Occupational Safety & Health Administration. Retrieved from: https://www.osha.gov/oshstats/commonstats.html; see also Cullen, L. A Job to Die For. Monroe, ME: Common Courage Press, 2002.

[8] Reiman, J. and P. Leighton (2012). The Rich Get Richer and the Poor Get Prison (10th ed.). New York: Routledge, p. 87.

[9] Cullen, L. (2002). A Job to Die For. Monroe, ME: Common Courage Press.

[10] Ibid; see also Friedrichs, D. (2009). Trusted Criminals: White Collar Crime In Contemporary Society (4th Edition). Belmont, CA: Wadsworth.

[11] Friedrichs, p. 59.

[12] Corporate Crime Reporter 48, December 7, 2011. Retrieved from: http://www.corporatecrimereporter.com/alphanonpros12072011.htm

[13] Barrett, J. “When Business Conduct Turns Violent: Bringing BP, Massey, and Other Scofflaws to Justice.”  American Criminal Law Review (2011) 48: 287-333, p. 1.

[14] Ibid., p. 294.

[15] Ibid, p. 315.

[16] Ward, K. Upper Big Branch Mine superintendent sentenced. Charleston Gazette. January 17, 2013. Retrieved March 7, 2013 from http://www.wvgazette.com/News/montcoal/201301170059.

[17] Quillan, M. “Hamlet Fire Defines and Divides a Town.” News Observer, September 4, 2011. Retrieved from http://www.newsobserver.com/2011/09/04/1459661/hamlet-fire-defines-and-divides.html

[18] Office of Public Affairs. “CH2M Hill Hanford Group Inc. Admits Criminal Conduct.” U.S. Department of Justice, March 7, 2013. Retrieved from http://www.justice.gov/opa/pr/2013/March/13-civ-275.html

[19] Lo, P. “Walmart Faces Increased Scrutiny Over Bangladesh Sweatshop Fire.” CorpWatch, January 7, 2013. Retrieved from: http://www.corpwatch.org/article.php?id=15804.

[20] “On Scene Coordinator Report http://www.uscg.mil/foia/docs/dwh/fosc_dwh_report.pdf Oil Spill. Submitted to National Response Team, September 2011. Retrieved from http://www.uscg.mil/foia/docs/dwh/fosc_dwh_report.pdf

[21] Associated Press. “BP’s Own Experts Knew of Risks at Plant in Texas City Where Blast Killed 15, Report Says.” Sioux City Journal, 2006.

[22] Herper, M. “David Graham on the Vioxx Verdict.” Forbes, August 19, 2005. Retrieved from http://www.forbes.com/2005/08/19/merck-vioxx-graham_cx_mh_0819graham.html.  

[23] Quin, B. Thalidomide campaigners dismiss manufacturer's 'insulting' apology. The Guardian. September 1, 2012. Retrieved from: http://www.guardian.co.uk/society/2012/sep/01/thalidomide-campaigners-dismiss-insulting-apology.

[24] Levon, M. GM’s Exploding Pickup Problem. Mother Jones, April 6, 2010. Retrieved from http://www.motherjones.com/environment/2010/03/gm-ck-exploding-pickup

[25] Bomey, N. GM recalls 3.4 million more cars. Chicago Tribune, June 17, 2014, pp. B1, B6.

[26] U.S. Consumer Product Safety Commission. Five Infant Deaths Prompt CPSC to Sue Manufacturer of Nap Nanny and Chill Infant Recliners. December 5, 2012 Release Number: 13-058. http://www.cpsc.gov/en/Newsroom/News-Releases/2013/Five-Infant-Deaths-Prompt-CPSC-to-Sue-Manufacturer-of-Nap-Nanny-and-Chill-Infant-Recliners/

[27] Friedrichs, Trusted Criminals, p. 50.

[28] Ibid.

[29] Friedrichs, Trusted Criminals, pp. 77–90.

[30] Corporate tax battle enters fiscal cliff fracas. NBC News, December 12, 2012. http://www.nbcnews.com/business/economywatch/corporate-tax-battle-enters-fiscal-cliff-fracas-1C7529989; Friedman, J. “The Decline of Corporate Income Tax Revenues.” Center on Budget and Policy Priorities, October 24, 2003. Retrieved from http://www.cbpp.org/cms/index.cfm?fa=view&id=1311.

[31] Mokhiber, R. “Top 100 Corporate Crime Stories of 2011.” Common Dreams, December 17, 2011. Retrieved from: https://www.commondreams.org/view/2011/12/17-2

[32] The Economist. “The smartest guys in the room.” May 12, 2011. Retrieved from: http://www.economist.com/blogs/dailychart/2011/05/insider_trading.

[33] Sutherland, E. White Collar Crime. Chicago: University of Chicago Press, 1949.

[34] Clinard, M. B. and P. C. Yeager. Corporate Crime. New York: The Free Press, 1980.

[35] Erickson, K. T. Everything in Its Path: Destruction of Community in the Buffalo Creek Flood. New York: Simon & Schuster, 1976.

[36] FBI, Financial Crimes Report to the Public. Fiscal Years 2010–2011. March 23, 2012. Retrieved from http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

[37] Sutherland, E. H. and D. R. Cressey. (1970). Criminology (8th ed.). Philadelphia: Lippincott.

[38] Agnew, R., N. L. Piquero and F. T. Cullen (2009). “General Strain Theory and White-Collar Crime.” In Simpson, S. S. and D. Weisburd (eds.), The Criminology of White-Collar Crime. New York: Springer.

[39] Young, T. R. (1989). “Corporate Crime: Transpersonal Ways to Steal.” The Red Feather Institute.  Retrieved from: http://www.critcrim.org/redfeather/crime/005corporate.html.

[40] Heilbroner, The Nature and Logic of Capitalism, pp. 42–46. He is quoting from Smith’s famous The Wealth of Nations (1976). Oxford: Clarendon Press, pp. 709–10.

[41] Ibid, p. 60. Crime is indeed very profitable—for those who control it. It is not surprising that we have a multi-billion dollar “crime industry” which, like any other industry, seeks profits from crime in a variety of contexts—from those who build prisons, to those who supply an infinite variety of goods and services to the institutions, to those who write the news stories and sell books about crime and criminals. See Shelden, R. G., W. B. Brown, K. Miller and R. Fritzler (2008). Crime and Criminal Justice in American Society. Long Grove, IL: Waveland Press, for a discussion of this “crime control industry.”

[42] A fascinating slant on this process is described as the “McDonaldization” of U.S. society. This has been defined as “the process by which the principles of the fast-food restaurant are coming to dominate more and more sectors of American society as well as of the rest of the world.” See Ritzer, G. (1996). The McDonaldization of Society (revised ed.). Thousand Oaks, CA: Pine Forge Press, p. 1.