Rules are made to be broken, or so they say. But some offenders will not pay dearly for their transgressions.
A just-released General Accounting Office report found that federal agencies were woefully behind in adjusting for inflation the civil penalties they impose for violating federal regulations. "Suitably severe maximum penalties allow agencies to punish willful and egregious violators appropriately and serve as a deterrent to future violations," the report said. "Agencies' failure to comply with those requirements may have cost the government millions of dollars in lost penalties from individuals and organizations that are the worst offenders of health, safety, environmental and other statutes."
Federal agencies often do not assess maximum fines, and some do a poor job collecting them. Many regulatory statutes specify the amounts of fines, and until recently they could not be adjusted without congressional approval.
Although many penalties are not large compared with the size of some of the companies fined, they signal that government regulators are on the beat. For example, Ford Motor Co. agreed to pay $425,000 in civil penalties in 1999 after the National Highway Traffic Safety Administration charged that Ford failed to promptly recall some of its vehicles. The Consumer Product Safety Commission assessed a $900,000 civil penalty on Lane Co. in 2001 for allegedly failing to report a hazard in its cedar chests.
Steven P. Solow, who was chief of the environmental crimes section at the Environmental Protection Agency in the Clinton administration, said increasing fines is only part of the equation. "The whole issue of amounts begs the question of what will get results in stopping bad behavior," he said. "No one is taking the time or spending the money to find out what really deters people."
The main problem the GAO identified was a lack of will to increase fines. Congress addressed the problem of lagging penalties in 1996, calling on the 80 federal agencies with civil penalty authority to increase the fines by that October, with the first adjustment limited to 10 percent of the penalty.
The GAO found that as of last June, 16 agencies had not adjusted their penalties. Among those were the Education Department, the Federal Energy Regulatory Commission, the Food and Drug Administration, and the Customs Service. All have agreed since to make changes. Sixty-four agencies increased their fines, but only nine met the deadline; the Justice Department was among the laggards, not acting until three years after the deadline. A second adjustment was due within four years, if an increase was warranted. But 19 of the 64 who made initial increases let that deadline pass, too.
It's not clear how much this costs taxpayers, because no one keeps track of penalty assessments and collections. That was done briefly by the Treasury Department's Financial Management Service. Its last report, issued in 1998, showed that $1.3 billion in penalties had been assessed by 77 agencies for fiscal 1997. Collections amounted to $468 million. The reporting requirement was dropped when Congress passed a law eliminating many federal reports.
A flaw in the law prevents the fines from being fully updated, the GAO concluded, citing what it called an "inflation gap" when first adjustments are limited to 10 percent of a penalty amount.
For example, one of the civil penalties the Federal Aviation Administration increased was a maximum $1,000 fine, set in 1958, for discovery of a firearm at an airport baggage security checkpoint. Because of the 10 percent cap, the new maximum became $1,100. If the penalty had been adjusted from 1958 though 1996, the new maximum would have been $5,277, the report said, leaving an inflation gap of $4,177.
Some agencies made adjustments in their civil fines incorrectly because of arcane rounding rules and how inflation is calculated. Congress also exempted 238 penalties called for in statutes governing the Customs Service, the Internal Revenue Service, the Occupational Safety and Health Administration, and the Social Security Administration.
"We're alerting Congress the law they did pass did not have the intended consequences they thought it should have," said Victor S. Rezendes, managing director of strategic issues for the GAO.
Some agencies made the adjustments correctly but said they were still not enough. When NHTSA made its second adjustment, increasing the maximum civil penalty from $800,000 to $925,000, it said the increase was "less than adequate," amounting to about a dollar per vehicle in a typical large safety recall campaign. The agency said that if it could have adjusted correctly for inflation, the maximum fine would be about $2.5 million.
The GAO hoped that the Treasury Department, Justice Department or Office of Management and Budget would begin implementing and overseeing the law, but it got no takers.
The auditors called for more changes in the law to close the inflation gap, allowing agencies with exemptions to adjust their penalties.
It's not clear that anyone on Capitol Hill will take up that banner. In the past, it has taken events like a national emergency to get results.
As part of the Homeland Security Act, the modest FAA firearms penalty was increased to $10,000 from $1,100. Similarly, NHTSA's concerns were alleviated after the Firestone tire failures. A reform law passed in 2000 increased the agency's maximum penalty to $15 million.