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Corporations Stiffing Government on Fines
Yahoo News/AP
March 19, 2006

When a gasoline spill and fiery explosion killed three young people in Washington state, officials announced a record penalty against a gas pipeline company: $3 million to send the message that such tragedies "must never happen again."

When nuclear labs around the country were found exposing workers to radiation and breaking other safety rules, assessments totaling $2.5 million were quickly ordered.

When coal firms' violations were blamed for deaths, injuries and risks to miners from Alabama to West Virginia, they were slapped with more than $1.3 million in penalties.

What happened next with these no-nonsense enforcement efforts? Not much. The pipeline tab was eventually reduced by 92 percent, the labs' assessments were waived as soon as they were issued, and the mine penalties largely went unpaid.

The amount of unpaid federal fines has risen sharply in the last decade. Individuals and corporations regularly avoid large, highly publicized penalties for wrongdoing — sometimes through negotiations, sometimes because companies go bankrupt, sometimes due to officials' failure to keep close track of who owes what under a decentralized collection system.

These are conclusions of an Associated Press examination of federal financial penalty enforcement across the nation, which also found:

_The government is currently owed more than $35 billion in fines and other payments from criminals and in civil cases, according to Justice Department figures. This is almost five times the amount uncollected 10 years ago — and enough to cover the annual budget of the Department of Homeland Security. A decade ago, Congress mandated that fines be imposed regardless of defendants' ability to pay, which has added tremendously to outstanding debt.

_In 2004, federal authorities ordered $7.8 billion in 98,985 fines, penalties and restitution demands in criminal and civil cases, but collected less than half of that.

_White-collar crime cases account for the largest amount of uncollected debt. In a study, Government Accountability Office investigators found that just 7 percent of restitution in such cases is paid.

"Fines and orders to pay restitution are an important part of how we punish convicted criminals. When so little effort is made to collect that money, we allow convicted criminals to avoid punishment for their crimes, weaken our criminal justice system and ultimately deny justice to the victims of crimes," said Sen. Byron Dorgan (news, bio, voting record), D-N.D., who has pressed for closer scrutiny for years.

The mechanisms of financial penalty enforcement are complex. To glimpse them, the AP filed Freedom of Information Act requests with a dozen federal agencies, seeking records on why and how they issue and collect administrative penalties and other assessments.

The AP reviewed the responses, which ranged across the spectrum of regulation — from penalties for an Illinois company's shoddy bike handlebars that resulted in knocked-out teeth to fines for selling tainted meat in Tennessee. The AP also reviewed more than a decade of congressional and Justice Department reports on uncollected debt, and interviewed agency officials, prosecutors and individuals who were fined.

Although the government does collect billions each year in fines, penalties and restitution — including hundreds of millions in long-outstanding debt — success rates vary from agency to agency, region to region, case to case.

In many high-profile cases, fines are touted by authorities as proof that they are cracking down. Yet frequently those orders are quietly negotiated to just a fraction of their original amounts — as if drivers, faced with fines for speeding, offered the traffic court judge pennies on the dollar, and the judge agreed.

Documents provided to the AP by the Labor Department's Employment Benefits Security Administration, whose job is to protect pension and welfare benefits, showed that $2,000 was the maximum amount paid on nearly a dozen penalties ranging from $86,500 to $180,000; these were for various kinds of violations, everything from failure to file reports to self-dealing by pension fund managers.

Why the reductions? Officials explained that compliance is the agency's goal, and that the law allows penalties to be reduced when companies make amends. Violators who don't comply risk being referred to the Treasury Department, which can collect by seizing federal benefits.

The Occupational Safety and Health Administration's written policy explains to inspectors that they can reduce penalties by as much as 95 percent, "depending upon the employer's `good faith,' (25 percent) `size of business,' (60 percent) and `history of previous violations.' (10 percent)"

Internal documents from U.S. Customs show that dramatically large fines may be cut sharply.

Agency documents released under AP's FOIA request listed, for example, a $60,911,316 "commercial fraud" assessment for one company — but the case ended with a $15,000 collection by Customs.

The company, Richemont North America, contradicted the Customs reports, saying the case never reached the point of an actual, multimillion dollar fine.

Admittedly, some paperwork was not in order, company lawyer Alan Grieve said, but he added: "Ultimately, the size of the settlement does reflect the fact that Richemont had no major problem at all."

The Energy Department routinely issues substantial fines it isn't even allowed to collect.

Federal law exempts the national nuclear laboratories from most financial liability, but the Energy Department has issued some $2.5 million in fines against Los Alamos, Livermore and Argonne national laboratories since 2000. The fines — issued and waived in the same sentence — involved 31 different workers who inhaled or touched radioactive or toxic materials.

In 2004, Energy's National Nuclear Safety Department fined Los Alamos National Laboratory in New Mexico $770,000 for five separate violations after two workers were exposed to dangerously high levels of plutonium. The violation notices add in parentheses: "Waived by Statute."

"This is kind of an exercise in absurdity," said Greg Mello, who heads the Los Alamos Study Group, a nuclear disarmament activist organization in Albuquerque.

Even so, the Energy Department includes the fines in its annual reports to Congress and often announces them in press releases.

Last year, Congress tightened the rules so that as nuclear laboratory contracts are renewed, the fine waivers are eliminated. Eventually, said DOE spokesman Jeff Sherwood, nuclear labs will have to pay imposed fines.

The reason DOE issued fines it could not collect was to show what the problems were and how bad, he said: "A $1 million fine says something different than a $10,000 fine."

Financial penalties are regularly touted by agencies and prosecutors as a strict consequence of lawbreaking. The message — that violators can expect to pay dearly — can be misleading.

The Office of Pipeline Safety, a Transportation Department bureau, is one of a number of agencies chastised by members of Congress for failing to follow through on enforcement.

Nearly seven years ago, a pipeline ruptured, spilling 230,000 gallons of gasoline into a creek near Bellingham, Wash. The fuel exploded into a fireball that ravaged the surrounding woods. And it killed two 10-year-old boys playing in the woods and a young man, 18, who had gone to the stream to fish.

Authorities vowed to punish those at fault, and indeed some company officials eventually served prison time.

But on June 2, 2000, the Transportation Department issued a forceful press release, announcing a $3.05 million administrative penalty against the pipeline owner, Olympic Pipe Line Co. This, it said, was the largest in the history of the federal pipeline safety program.

"Tragic events like this pipeline failure must never happen again," then-Transportation Secretary Rodney E. Slater said at the time. "This civil penalty is one of a series of actions we have and are taking to help protect the people and environment."

But last year, with the memorials in place, fish returning to the creek and the forest budding with new growth, the penalty was quietly reduced to $250,000.

"They let them off with a slap," said Carl Weiner, who heads the Bellingham-based Pipeline Safety Trust.

Olympic Pipe Line officials disagree, saying they already paid $11 million in state and Justice Department assessments and $15 million in restoration and improvements.

Still, the case illustrates how the value of assessed penalties is merely a starting point for some officials.

The Environmental Protection Agency, for example, is often willing to reduce penalties in exchange for polluters agreeing to spend money cleaning up.

"We trade off a portion of the penalty in return for them doing supplemental environmental projects," said the EPA's Tom Skinner.

The recent West Virginia coal mine deaths focused new criticism on enforcement tradeoffs made by mine safety inspectors.

During hearings in January, Sen. Arlen Specter (news, bio, voting record), R-Pa., voiced outrage at how coal operators can whittle down fines. He cited assessments by the Mine Safety and Health Administration against a company in an Alabama mine where 13 people were killed in 2001.

"Incredibly, ... an Administrative Law Judge reduced these fines from $435,000 to a mere $3,000 — a decision that harms workers and erodes MSHA's authority," Specter and three fellow senators elaborated in a letter to Labor Secretary Elaine Chao.

The Labor Department later announced plans to raise fine amounts, and in a case it called "precedent-setting" sought an injunction against a Kentucky mine operator and two companies he owns, which paid nothing on $200,000 in penalties.

AP's Freedom of Information filing turned up numerous cases in which administrative penalties were ordered against mining companies for dangerous laxness in following rules — and yet records showed many went unpaid. Sometimes, in the narrow-margin world of small coal companies, the violator escaped paying by declaring bankruptcy or ceasing operations.

On Feb. 20, 2002, near Rupert, W.Va., a section of mine roof up to 10 feet thick collapsed, killing one miner and seriously injuring another. It took more than four hours to dig them out.

The MSHA investigators' report concluded: "Root cause — Mine management condoned unsafe work practices and ... demonstrated a reckless disregard of the dangers posed by conditions created when faulty pillar recovery methods were used." Some supervisors were eventually ordered jailed and fined, prosecutors said; two companies that ran the mine were placed on a year's probation.

The companies also were hit with $165,000 in administrative penalties each. But MSHA has no record of any payment four years later. When contacted by AP about why, the agency cited records showing the mine was sealed and, in one case, a bankruptcy filing made.

"They probably figured it wasn't worth it financially to stay in business," said the agency's Allen K. Watson.

When agencies can't get debtors to pay, the Justice Department may get the task of collecting a fine or penalty. But the process is decentralized. The collection legwork falls to the 93 U.S. Attorney offices around the country, where "financial litigation units" have the task of pursuing the money.

Although the backlog of uncollected debt has drastically increased, from $6 billion in 1995 to more than $35 billion in 2004, the number of financial litigation unit lawyers has remained steady, usually just one or two per office, supplemented by paralegals.

Reviewing the adequacy of staffing was one of 14 recommendations made by the GAO in 2001 to improve collection. A followup report two years ago noted progress in streamlining procedures but still said "fragmented processes and lack of coordination" remained.

Until these problems are fully addressed, GAO said then, "the effectiveness of criminal fines and restitution as a punitive tool may be diminished."

An attempt by the prosecutors and court system to create a National Fine Center, centrally coordinating collections across myriad jurisdictions, collapsed and was abandoned a decade ago.

The Justice Department office overseeing U.S. attorneys said it has made strides toward better coordination, including links with Treasury's program to offset certain federal benefits to repay debt. Justice also published a "Prosecutors Guide to Criminal Monetary Penalties."

A major factor in the high rate of uncollected fines and penalties was a change in the law.

The 1996 Victims Mandatory Restitution Act requires judges to order payments regardless of a defendant's ability to pay. It's no coincidence, says Natalie Collins, a spokeswoman for the U.S. Attorney's office in Las Vegas, Nev., that the uncollected debts have steeply increased since the law was passed.

"These people come out of prison with a huge restitution debt and if they can't pay, they have that judgment just hanging over them," she said. "We can't squeeze blood out of a turnip."

That said, some prosecutors' offices are more successful than others in going after the money.

For example, in 2003, Delaware's U.S. Attorney's office was the top collector in the country, bringing in $365 million in criminal and civil debt and leaving just $19 million outstanding.

At the other end of the spectrum that year was the Montgomery, Ala., office, which collected $914,676 and ended 2003 with almost $30 million uncollected.

Steve Doyle, an assistant U.S. Attorney in Montgomery, said the small office has just one attorney and one paralegal, assigned part-time to collecting debts — which are often uncollectable.

"Other than in white-collar cases, most criminal defendants don't have any money," said Doyle. "We attempt to collect everything that can be collected."

Sometimes even as financial penalties are being ordered, it's obvious that the money is never going to be paid.

"I've had clients who have had millions of dollars of restitution imposed, and every one in the courtroom knows that this person will never be able to pay," said Mike Filipovich, a federal public defender in Seattle.

Five years ago, Filipovich represented Leonard Fridall Terry Antoine, a member of Canada's Cowichan band of the Salish tribe, who was sentenced to two years in prison and ordered to pay $147,000 for paying people to shoot bald eagles and selling their parts. Prosecutors charged him $3,000 for each of 49 eagles.

"It is absolutely right that this defendant serve time for such an outright violation of our nation's environmental laws," said Tom Sansonetti, then-Assistant Attorney General of the Department of Justice's Environmental and Natural Resources Division. "The outcome will serve as a deterrent." Antoine was released from prison in 2003, but has not paid any of the fines, according to federal records.

"The reality for most folks," said Filipovich, "is that they simply can't afford to pay."

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