Getting Tougher on Product Safety

Finally, the CPSC is focused on its reason for being

By Philip Mattera, director of the Corporate Research Project, for the Dirt Diggers Digest

For most of its history, the Consumer Product Safety Commission has not been the most aggressive federal 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 DC 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. As shown in Violation Tracker, the agency has imposed a total of $397 million in fines against companies since 2000. 

More than half of that total has 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 recently announced 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., Ltd. 

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 CPSC. The company has paid more in fines to the CPSC than any other company over the past two decades. That includes a $91 million penalty that was by far the largest single fine brought by the agency 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.

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 everyone in a rogue company that it has to change it practices in a fundamental way.