Reuters is reporting that Volkswagen AG and the Justice Department are near an agreement to resolve criminal and civil liability for the German automaker’s diesel emissions cheating scandal. If the reported $3 billion figure is finalized, it will be the largest fine ever paid by an automaker to the U.S. Government.
As the calendar year wraps up, we thought it would be interesting to take a look back at the companies paying more than $1 billion in 2014 to resolve investigations into corporate misconduct. Twelve companies agreed to these large fines (if we include Suntrust which fell just shy of $1 billion) for a total of more than $45 billion in penalties to the US (and a handful to the UK from the forex settlement). A few things worthy of note:
- Only 2 companies were not financial institutions.
- Only 5 cases involved mortgage fraud.
- Not one pharmaceutical company is on the list.
- We only used the calendar year. J&J and JPMorgan Chase both had large settlements that would have qualified if we used Fiscal Year 2014.
Bank of America – $16.65 Billion in August
The largest civil settlement with a single entity in American history was agreed to by the financial institution to resolve misconduct by Countrywide, Merrill Lynch and BofA stemming from . The $5 billion penalty imposed under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) is the largest under the law, eclipsing the $4 billion paid by Citigroup only a month before. Four whistleblowers in this case were paid approximately $170 million in total under the False Claims Act and FIRREA.
BNP Paribas – $8.9 Billion in June
The French bank agreed to a guilty plea to charges it violated US economic sanctions by providing dollar clearing services to individuals and entities dealing with Sudan, Cuba and Iran between 2004 and 2012. Three individuals helped the government make their case agains BNP.
Citigroup – $7 Billion in July
The settlement covered misrepresentations made to investors regarding the quality of mortgage securities. It paid a short-lived record $4 billion as a civil penalty to settle the Justice Department claims under FIRREA. It also paid $208.25 million to the Federal Deposit Insurance Corporation (FDIC) and nearly $300 million to five states participating in the agreement. The remaining $2.5 billion was earmarked for consumer relief.
Anadarko – $5.15 Billion in April
Anadarko agreed to pay the largest recovery for the cleanup of environmental contamination. It resolves the liability of Kerr-McGee, an Anadarko subsidiary acquired in 2006, for legacy liabilities spun off in an inadequately funded company which filed for bankruptcy in 2009.
Goldman Sachs – $3.15 Billion in August
Goldman agreed to pay the Federal Housing Finance Agency (FHFA) for securities law violations in the sale of private-label mortgage-backed securities to Freddie Mac and Fannie Mae between 2005 and 2007.
Credit Suisse – $2.6 Billion in May
The Swiss bank pleaded guilty to conspiracy to aid U.S. taxpayers in filing false income tax returns with the Internal Revenue Service. It paid $1.8 billion to the Department of Justice for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services. It also paid $196 million to the SEC earlier in the year for providing cross-border brokerage services without registering.
MF Global Holdings Ltd. – $1.3 Billion in December
A consent order in December 2014 requires the parent company of brokerage unit MF Global Inc. to pay $1.2 billion in restitution and $100 million in fines to the CFTC. MF Global had liquidity problems in 2011 due to trading losses that caused its bankruptcy.
Morgan Stanley – $1.25 Billion in February
The FHFA settled its claims over private-label mortgage-backed securities sold to Freddie Mac and Fannie Mae between 2005 and 2007 for $625 million to each.
Toyota Motors – $1.2 Billion in March
Toyota agreed to the largest penalty for an automobile manufacturer to resolve allegations of misconduct related to its recall of vehicles for unintended acceleration. The charges involved misleading statements made to consumers and regulators in 2009 and 2010 concerning the safety of its vehicles.
FOREX Manipulation – $4.3 Billion by six banks in November to three agencies in the US and UK.
Citigroup and JPMorgan each paid a total of about $1 billion in fines between the US Commodity Futures Trading Commission, Office of the Comptroller of the Currency and UK Financial Conduct Authority to resolve allegations its traders manipulated the FOREX market. Four other banks paid amounts under $1 billion to resolve the investigations by these government agencies. UBS, RBS, HSBC and Bank of America each paid between $250 million and $800 million.
Suntrust Mortgage – $968 Million in June
The mortgage company settled claims involving problems with improper mortgage origination, servicing and foreclosure arising between 2006 and 2012. The settlement involved the Justice Dept., Housing and Urban Development (HUD), Consumer Financial Protection Bureau (CFPB) and 49 states plus the District of Columbia. The deal was agreed to in principal in late 2013 but announced in 2014.
Other Settlements of Interest
While we were doing our research, we found a few other record settlements that we thought you would find interesting.
Alstom – The French engineering company agreed to the largest criminal tax penalty for an FCPA violation imposed by the Department of Justice, $772 million, in December 2014. Alstom used consultants to pay $75 million in bribes to secure $4 billion in projects with state-owned companies in five countries.
Hyundai Motor and Kia Motors – The two related auto manufacturers agreed to a $100 million penalty, the largest ever for violation of the Clean Air Act, in November 2014. They overstated the fuel economy and understated the greenhouse gas emissions of their cars and SUVs in 2012 and 2013.
AT&T Mobility – The $105 million settlement with the Federal Communications Commission over cramming unauthorized third party subscriptions and premium text messaging onto customer bills was the largest enforcement action in the FCC’s history.
We are aware of ten whistleblowers involved in four of these cases. At this point, only payments to the individuals in the Bank of America case have become public knowledge.
There may have been additional cases involving insiders where the details have not yet been made publicly available. For example, the CFTC has not yet issued a notice of covered action for the fines issued to the banks in the forex case.
Transportation Funding Bill Set to Increase Damage Cap for Train Crashes and NHTSA Fines for Auto Companies
More money will be available to victims of the Amtrak crash in Philadelphia during May as Congress is set to increase the damage cap for train crashes by nearly 50% to $295 million, according to a compromise reached by members of the United States Senate and House of Representatives on the transportation bill today.
The Department of Justice has resolved its criminal investigation into General Motor’s conduct concerning the sale of cars with defective ignition switches and the delayed recall of those vehicles. The result is an agreement by GM to pay $900 million
GM’s $900 million penalty was 25 percent less than the fine handed out to Toyota Motors in 2014. The DOJ indicated that once the company came forward, the speed of its internal investigation and the fact that it took responsibility for its behavior allowed it to settle the case much faster than the one against Toyota. GM also paid $35 million previously to resolve violations of regulations enforced by the NHTSA requiring companies to announce recalls in a timely fashion. GM paid the maximum fine for a single violation.
GM was accused of wire-fraud and a scheme to conceal a deadly safety defect. GM failed to fix the defect at issue, which has been blamed for more than 120 deaths, over a period of more than a decade. The DOJ has not closed the door on prosecuting specific employees yet, but indicated it may be difficult to hold them responsible. GM also reached a settlement agreement with over a thousand victims of the defect.
The House has yet to act to pass legislation to address the increase in misconduct by auto manufacturers. Several bills to address auto safety issues have been introduced but there has not been much momentum on them. Earlier this year, the Senate passed a bill to authorize monetary rewards for auto whistleblowers employed by auto manufacturers, parts dealers and suppliers if the government collects monetary sanctions as a result of the information. Unlike the Dodd-Frank Act, the payment of rewards is discretionary rather than mandatory to eligible individuals.
In other automaker news, the EPA has accused Volkswagen of evading the Clean Air Act emissions standards with a defeat device. The vehicles reportedly emitted nitrogen oxide well in excess of the legal limit but detected when an emissions test was being conducted in order to hide the air pollution from federal regulators. The maximum Clean Air Act fine is $37,500 per vehicle, leading to a potential fine of as much as $18 billion if the maximum penalty were to be handed out.
The nation’s auto safety and highway infrastructure is increasingly demanding the attention of Congress and the White House. This trend continued over the past month. At the end of January, Senators Thune and Nelson reintroduced the Motor Vehicle Safety Whistleblower Act into the U.S. Senate. Transportation Secretary Anthony Foxx also commented to reporters in early February on both the budget proposal seeking increased funding for the NHTSA and the potential for the White House to unveil new auto safety reforms when it revamps the long-term highway funding bill. Foxx also pushed for the bill to boost infrastructure funding at the House Transportation Committee yesterday.
The upcoming legislation for auto safety previewed by Foxx would have many of the Obama administration’s previously proposed reforms, including an increase to $300 million in the maximum fine for an automaker that unnecessarily delays the recall of a vehicle and the power to get vehicles deemed an “imminent hazard” off the road faster.
If the auto safety reforms can latch on to the highway funding bill, they may move faster than might otherwise be expected. The Highway Trust Fund, which pays for infrastructure projects, will run out of money on May 31st and will be hotly debated over the next few months. The Obama administration’s initial proposal in this area was a six year, $478 billion plan to improve the nation’s infrastructure. Among the ideas for funding the bill has been a tax on overseas corporate revenue and an increase on the federal gas tax.
The record number of auto recalls last year and the continuing investigation into Takata has maintained momentum for action in this area. The White House’s budget proposal in early February called for the defect investigation budget at the National Highway Traffic Safety Administration to more than triple from its current $9.7 million budget to $31.3 million. The increased funding would allow the agency to create a trend analysis division as well as a separate, specialized crash investigation group.
The defects team currently has 8 screeners and 16 defects to analyze 75,000 complaints a year. The proposal would allow the defect team to double its personnel by adding a mathematician, two statisticians, four investigators and 16 engineers. Amid the growing complexity of automotive technology and more data in accident reports, manufacturers’ data, medical records and even social media, the Transportation Department needs the additional funds in order to be able to identify safety defects quicker, ensure remedies are put in place and the public informed about the problems.
The crash investigations group would be similar to the National Transportation Safety Board team investigating high-profile accidents. The NHTSA already has a crash investigation group as part of its statistics and analysis unit. However, this group would target accidents which may involve a defect that the NHTSA is investigating and collect the data the NHTSA needs.
Overall, the six-year budget proposal calls for an increase in the funding of the NHTSA’s vehicle and research program from $269 million to $414 million in 2021.
I have yet to see the public discussion include much talk about the possibility of whistleblower incentives. However, Senators Thune and Nelson did reintroduce their auto whistleblower legislation into the Senate on January 29, 2015. The Thune-Nelson bill is now S.304 in the 114th Congress.
Senator Thune spoke when re-introducing the bill. Thune called it a commonsense, bipartisan bill that will help to prevent injuries and deaths for American drivers. It is absolutely clear that vehicle safety defects need to be identified as early as possible to protect consumers from death and injury, according to Thune. He also cited reports of employees concerns being ignored, silenced or covered up as evidence that the bill was necessary to encourage them to come forward sooner.
Following Thune’s remarks, Senator Nelson provided an update on the investigation into the defective Takata airbags. Takata identified to the committee a total of 5 deaths and 64 injuries due to ruptured airbags. Nelson added that there was another death due to a defective airbag in Texas in January and expressed his desire to get to the bottom of the situation.
Senators Jerry Moran (R-KS) and Richard Blumenthal (D-CT) were added as cosponsors of the legislation. Senator Moran is the Chair of the Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security and Richard Blumenthal is the Ranking Minority Member of the Subcommittee. They join Senators Heller, McCaskill, Klobuchar and Ayotte.
The legislation has been referred to the Committee on Commerce, Science and Transportation. We will keep you updated as it moves through Congress.
Spring 2016 Update:
The Thune-Nelson proposal was signed into law by President Obama as part of the FAST Act in December 2015. For additional information, please visit our page dedicated to auto whistleblowers.
The Justice Department filed a complaint against Volkswagen in Detroit on Monday, according to media reports. The lawsuit accuses the auto manufacturer of violating the Clean Air Act by defeating emissions testing in diesel-powered vehicles. This scandal broke last year and led Volkswagen CEO Martin Winterkorn to resign.
The U.S. government is investigating General Motors (GM) big pickup trucks and SUVs due to faulty braking systems. Roughly 2.7 million vehicles sold in the U.S. may be affected by the issue, so if you own a GM truck or SUV, here is what you need to know.
The National Highway Traffic Safety Administration (NHTSA) has yet to publish the proposed rules for the NHTSA whistleblower program. This whistleblower program was authorized by the Fixing America’s Surface Transportation (FAST) Act in December 2015.
Eric Young was interviewed for the January 16, 2017 edition of the Corporate Crime Reporter on the new auto whistleblower reward program established by Congress in 2015 as part of the FAST Act. With Takata and VW paying large fines to the U.S. Government in the past two weeks, it is a timely read.
The National Highway Traffic Safety Administration issued a fine of $70 million against airbag manufacturer Takata and an additional $130 million will become due if the company fails to meet the terms of the agreement with the government or additional violations are found. If paid in full, the Takata fine will be the largest civil penalty imposed by the NHTSA. Eight deaths and more than 100 injuries are thought to have been caused by the defective airbags.