Bringing
Regulatory Fines into the 21st Century
By
Phil Mattera, Dirt
Diggers Digest
In spite of perennial business complaints about regulatory overreach, for decades large corporations were able to break the law knowing that the potential financial penalties would inflict little pain. Typical fines were the commercial equivalent of parking tickets.
In
recent years, the Justice Department has forced Corporate America to pay a
higher price for its sins. Major banks, in particular, now have to consent to
ten or eleven-figure settlements, such as Bank of America’s $16.7 billion
payout last year.
DOJ,
however, handles a limited number of cases. The question is whether the federal
regulatory agencies are following suit in bringing penalty levels into the 21st
Century.
I’ve been looking at the enforcement data for those agencies as part of the preparation for the Violation Tracker my colleagues and I will introduce this fall. The numbers are a mixed bag.
One
agency that has apparently recognized the importance of substantial penalties
is the National Highway Traffic Safety Administration. In July it imposed a civil penalty of $105
million on Fiat Chrysler for failing to carry out a recall of 11 million
defective vehicles in a complete and timely manner.
The penalty, the highest in
the agency’s history, followed a $70 million penalty against Honda
earlier in the year. In 2000 Chrysler (then owned by Daimler) was fined only $400,000 for a deficient recall.
By
contrast, the Nuclear Regulatory Commission is still applying laughably low
penalty amounts. The list of “significant enforcement
actions” on its website shows only about three dozen cases in which any penalty
at all was imposed in the period since 2009, and only five of those involved
amounts above $50,000.
The
NRC list appears not to have been updated recently, but a look at recent press
releases by the agency show that penalty amounts continue to be modest. In
April of this year, the agency fined a subsidiary of Dominion
Resources all of $17,500 for security violations at a facility in Wisconsin.
Despite
a series of significant accidents, the Pipeline and Hazardous Materials Safety
Administration is still lagging in its penalty amounts. Since 2010 it has
collected fines of $1 million or more in only three cases, and it still imposes
penalties below $10,000 in some instances.
The
Occupational Safety and Health Administration, which has a much larger
jurisdiction than these other agencies, seems to have one foot in the past and
a couple of toes in the present when it comes to penalty levels. As the
AFL-CIO’s Death on the Job report points out, the average penalty
per inspection is only about $10,000.
In
a limited number of high-profile cases, OSHA brings out the big guns. When BP
failed to live up to the terms of a settlement stemming from a massive
explosion in 2005 at its Texas City refinery (photo) that killed 15 workers,
the agency proposed penalties of $87 million
(though it settled for $50 million after the
company appealed).
Financial
penalties by themselves are not a panacea for ending the corporate crime wave,
but they are certainly part of the solution. And the bigger the better.
