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Unpaid Federal Fines Soar to $35 Billion

An AP review finds that financial penalties are often reduced, waived or simply ignored.

April 02, 2006|Martha Mendoza and Christopher Sullivan | Associated Press Writers

When a gasoline spill and 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 nationwide were found to be exposing workers to radiation and breaking other safety rules, assessments totaling $2.5 million were ordered.

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

What happened next with these no-nonsense enforcement measures? Not much. The pipeline tab was eventually reduced by 92%, 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 penalties for wrongdoing -- sometimes through negotiations, sometimes because companies go bankrupt, sometimes because officials fail 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 throughout the nation, which also found:

* The government is 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 7% 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 L. Dorgan (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 to a 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 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, 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 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 almost a dozen penalties ranging from $86,500 to $180,000; these were for various violations, from failure to file reports to self-dealing by pension-fund managers.

Why the reductions? Officials said that compliance was the agency's goal, and that the law allowed penalties to be reduced when companies made amends. Violators who don't comply risk being referred to the Treasury Department, which can seize federal benefits.

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

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

Agency files released under the AP's FOIA request listed a $61 million "commercial fraud" assessment for one company -- but the case ended with a $15,000 collection by Customs. The company said that some paperwork was simply not in order: "no major problem."

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