Monday, December 7, 2015

On the Road to Cleaner Air: Jail Time for White-Collar Violators?

Part II – Legal Expert: Prosecuting White-Collar Violators Incentivizes Regulatory Compliance

Prof. Rena Steinzor, recently authored, 
Why Not Jail: Industrial Catastrophes, 
Corporate Malfeasance, 
and Government Inaction

By Brandon Kline, Energy Law Fellow

This is the second in a four-part series on the legal issues arising from the probe into an alleged nitrogen oxide trap (a "Defeat Device" in the vernacular) installed in vehicles manufactured by Volkswagen of America (VW).  Part 1 described the manner in which a "Defeat Device" operates and why it matters in the context of the federal Clean Air Act.  In Part 2, we discuss regulatory failure, alternatives to regulatory enforcement and the evidence that VW’s actions resulted in premature deaths. 

In recent weeks, VW submitted a recall plan for 2-liter diesel cars to the California Air Resources Board, and the automaker must continue to cooperate with authorities in developing a recall plan to fix this problem in other affected models. Both the California Air Resources Board and the EPA will exercise cooperative jurisdiction to review the plan, ensuring that the proposed actions restore the vehicles so that they meet clean-air requirements. 

While it is encouraging to see that VW has begun paying attention to emissions standards and that the responsible authorities are now fully engaged, the ensuing fracas demonstrates a regrettable instance of regulatory failure. 

By its nature, a regulation restricts a firm like VW from doing what it otherwise would have done, according to Nobel-laureate economist Joseph Stiglitz. “The purpose of government intervention is to address potential consequences that go beyond the parties directly involved, in situations in which private profit is not a good measure of social impact.” Here, Congress enacted the Clean Air Act to authorize the EPA to regulate emissions from VW's diesel engines. Emissions standards ensure that the effects of pollution don’t fall on VW owners and other parties, including particularly vulnerable members of the general public. 

As Stiglitz notes, “Regulation is necessary because social and private costs and benefits, and hence incentives, are misaligned.” To be sure, VW is motivated by profit. Meanwhile, car buyers are in search of an affordable automobile that will provide them the benefits for which they bargained. Here, VW customers were promised a clean-diesel engine that complies with applicable clean-air standards. At the same time, the pollution that results from untreated emissions goes beyond the parties directly involved (see below).  Absent regulatory intervention, some legal commentators have suggested alternative measures for incentivizing compliance.

1. Prosecuting white-collar criminals is a legal alternative when regulations fail to protect consumers. 

Last month, Rena Steinzor, a professor at the University of Maryland Francis King Carey School of Law and founder of the Center for Progressive Reform, published a paper titled Federal White Collar Crime: Six Case Studies Drawn from Ongoing Prosecutions to Protect Public Health, Worker and Consumer Safety, and the Environment.

In the days leading up to the VW disclosure, Lewis & Clark welcomed Steinzor as its 28th annual Natural Resources Law Institute Distinguished Visitor. Her lecture on “How White Collar Criminal Enforcement Can Save the Environment” argued for prosecution of individuals at corporations involved in criminal acts related to the environment, and addressed the related social justice issues. (See here for a link to the podcast.)

Before delivering the Distinguished Environmental Visitor lecture, Steinzor spent some time on our campus attending classes and sharing her scholarship with faculty and students. During our October conversation, we discussed a range of subjects, from fresh food deserts to the University of Maryland’s response to the difficulties facing Baltimore following the tragic murder of Freddie Gray.

In her recently published text, Why Not Jail, Industrial Catastrophes, Corporate Malfeasance, and Government Inaction, Steinzor recommends innovative interpretations of existing laws to elevate the prosecution of white-collar crime at the federal and state levels.

On our way back from attending the Climate Change law lecture, Steinzor explained how incidents of regulatory failure came to shape her current views about applying criminal law to white-collar crimes.

Prof. Steinzor advocates this approach for white-collar criminals where, as here, regulatory enforcement seems to fall short of serving its consumer protection function. This view is consistent with underlying theories of criminal law, sounding in efficiency and fairness, as well as deterrence and retribution. Criminal law is traditionally described as directing its injunctions exclusively to actual or potential criminals. 

Significantly, when the public learns about companies committing crimes in their community, they see a double standard. Therein lies the rub: it seems to be the typical case for white-collar criminals to escape the same type of personal consequences faced by other criminals. For instance, if a drug dealer gets convicted for operating a drug business, they go to jail; in contrast, the white-collar criminal who gets caught operating their company in an illegal way, typically pays a fine. “People are cynical and it’s not good for the country,” Steinzor said.

2. Harvard and MIT study: Volkswagen’s Defeat Device will directly contribute to 60 premature deaths across the country.

Beyond the economic malfeasance at VW, Steinzor reminds, “The results of the excess pollution sickened people and even triggered premature deaths.” The device that was installed triggered less thorough treatment of emissions when state and local authorities were not testing the car. Accordingly, "VW vehicles with the device routinely emitted unsafe levels of nitrogen oxide, a precursor gas that combines with volatile organic compounds to produce ozone or, as it is more commonly known, smog."

Steinzor’s conclusion is supported by an October 2015 study conducted by MIT and Harvard University, which quantified the U.S. health impacts of VW’s emissions defeat devices. Researchers based their calculations on measurements by researchers at West Virginia University, who found that the vehicles produced up to 40 times the emissions allowed by law. The study concludes, “VW’s cheat device, which resulted in pollution 10-40 times higher than applicable EPA standards, could result in as many as 59 deaths in the United States and impose ‘social costs’ (e.g., illness, days off work and school) of up to $450 million.”

Daniel Kammen, the editor-in-chief of Environmental Research Letters and a professor of energy at the University of California at Berkeley, says the group’s study provides a “rigorous evaluation of the scale of the impacts, which are potentially exceedingly serious.

“The analysis demonstrates the value of policy-inspired fundamental research where the air quality and health impacts of transgressions such as the VW issue can be calculated, and made available for public discussion,” says Kammen, who did not contribute to the research.


In Part 3 we highlight environmental crime prosecutions in general and the mens rea (or mental state) required for particular violations, focusing on the reasons VW is not likely to face criminal liability under the Clean Air Act in connection with the defeat device. In Part 4, we explore the scope of VW’s liability under other legal theories, in the context of recent guidance from the U.S. Department of Justice.

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