Reclaim Democracy!

The Dangerous Illusion of CAPPS II

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Proposed Air Security Program Threatens Our Privacy and Safety, Not Terrorists

By Jeff Milchen and Jeffrey Kaplan
First published in The Chicago Tribune April 19, 2004
(updated July, 2004)

The ongoing controversy over who knew of which terrorist threats and when has obscured one specific and telling finding from the commission investigating the 9/11 attacks. The commission revealed earlier this year that nine of the 19 hijackers were identified as safety risks by the federal government’s Computer-Assisted Passenger Pre-screening System (CAPPS) when they checked in for their flights.

The commission’s July, 2004 report added that “All five of the American Airlines Flight 77 hijackers [departing from Washington Dulles International Airport] were selected for security scrutiny,” via CAPPS. Luggage checked by the nine flagged hijackers was inspected, but the killers boarded their flights with no trouble.

If security personnel couldn’t employ information identifying suspect passengers to keep even one of those killers from their mission, how can the Bush Administration justify the proposed CAPPS II, a massive surveillance program that would create dossiers on every U.S. airline passenger?  It’s a critical time to ask, for CAPPS II soon could compromise both the privacy and safety of most Americans.

On March 17, the federal government announced that it will require airlines to collect and hand over selected information on all passengers to the Transportation Security Administration, an agency of the “Homeland Security” Department, to begin testing of CAPPS II.

This would initiate the largest surveillance program in U.S. history.

CAPPS II purportedly would help focus security resources by identifying airline passengers who pose the greatest risk of committing terrorist acts. The 2 million or so passengers flying to or from a U.S. airport each day would receive a risk assessment of green, yellow or red. Passengers rated green would receive routine screening. A yellow rating generates additional scrutiny. Red means say goodbye to your ticket and hello to law-enforcement agents–you won’t be boarding your flight.

Here’s how it works: When you make a flight reservation, the booking agent or airline records your name, address, phone number, date of birth and travel destination (that’s just for starters–the TSA could later expand the requirements). The data goes to the TSA, which forwards it to a company contracted to verify your identity. The TSA then feeds your data into a computer program to generate your risk assessment using government databases and algorithms.

So what criteria can label you yellow or red, and how does one challenge inaccurate data? Incredibly, the TSA provides passengers no right to know why they are deemed a security threat or to examine the accuracy of the government’s data.

This is just one glaring problem cited recently by the U.S. General Accounting Office (GAO) — an independent investigative arm of Congress. A GAO report on the CAPPS II plan faulted the TSA for lacking a credible budget, a timeline, adequate privacy protection policies, and any procedure for citizens victimized by false data to correct their record. Of eight critical concerns identified by Congress, the GAO said only one was addressed adequately. TSA officials insist the failures could be corrected.

Since even the most narrowly devised criteria will produce far more false positives than IDs of true security threats, CAPPS II is generating resistance well beyond privacy watchdogs.

Most business travel associations oppose the plan, too. This includes the Association of Corporate Travel Executives, which spoke up after 95 percent of its surveyed members said the proposed program is unacceptable. Among their concerns: If only 2 percent or so of passengers are coded red, as the TSA claims, 12 million people would be detained annually!

To appease businesses, the TSA will test a “registered traveler program” this summer whereby individuals able and willing to pay a fee and submit to a more invasive background check will be given a special ID card that entitles them to use an”express lane.”

TSA officials claim CAPPS II has been scaled back in response to earlier criticism that passengers would be forced to check their Fourth Amendment rights along with their bags. The TSA initially will not collect credit histories, for example, and promised to discard information soon after a passenger’s travels.

This promise is meaningless, however, since the “Patriot Act” empowers the government to procure these records at will from the contracted companies (which may retain and sell those records).  At a minimum, the government would be creating dossiers of our lifetime travel histories. And though the information the TSA says it will collect initially may seem inoffensive, the registered traveler program would coerce people to “volunteer” much more information in order to avoid second-class treatment and even longer airport lines.

Critics also are alarmed by TSA officials’ admission of plans to employ CAPPS II well beyond airports and for broader law enforcement purposes like catching common criminals — contradicting earlier promises to focus only on aviation security. Some critics even question whether government may legally detain a passenger unless a criminal charge can be filed against them.

A gift to terrorists?
The growing controversy over privacy and civil liberties threatens to obscure another fundamental question: can CAPPS II improve national security?

That’s doubtful, for the weakness in its underlying logic renders the program ineffective — or worse. A legal advice column in the trade journal Travel Weekly warned, “The system would be a terrorist’s delight.”

Why? CAPPS II proponents claim sacrificing privacy will allow most people to check in with less hassle by enabling aviation security to focus on high-risk passengers. Terrorist groups, however, easily could probe the system, determine which travelers get green ratings and consistently minimal screening and take advantage of that weakness.

Those members then could embark on a mission with greater confidence than with a more random selection process or one that relies on well-trained personnel to select passengers for intensive scrutiny.

And does any TSA official honestly believe that terrorists can’t obtain a false identification — available on any college campus or over the internet? According to federal investigators, at least two of the 9/11 hijackers’ passports “were clearly doctored.” It’s hard not to suspect they’ll announce the obvious later: the system is easily gamed, and Americans must therefore submit to a national ID card connected with a database of fingerprints or retina scans. Even the GAO report raises this scenario.

CAPPS II does have one sound premise: profiling of some kind can help allocate passenger screening resources most effectively.  It goes wrong in relying so heavily on technology. Observation and questioning by a trained human being (which admittedly could generate other concerns) can reveal tip-offs that no computer ever will catch.  Yet personal questioning of travelers who raise suspicion — the most critical component of an effective security program for Israeli airline El Al (widely considered the most secure airline in the world) — is not even under serious discussion.

Why? Real security is not as “efficient” as placebos. We often are sold a largely false choice: that we must sacrifice freedom or privacy to be secure. Speed vs. safety, however, is a genuine trade-off. Effective passenger profiling would result in some delays and inconveniences, impeding airline profits. Hence, the airline industry welcomed the installation of million-dollar x-ray scanners in more than 400 airports to check for luggage bombs, despite the intrinsic inability of x-rays to detect explosives (though they can be a useful tool when used by trained professionals). Transportation Secretary Norman Mineta admitted a false-positive rate of 35 percent for the machines.

Ironically, this is the one security realm where technology could provide help. But rather than investing in machines capable of detecting traces of explosives from outside luggage, Homeland Security officials and airlines preferred to project the illusion of increased safety.

Each expansion of federal power is framed as “fighting terror,” but the most effective terrorism prevention rarely demands sacrifices of our liberty. As the 9/11 commission report noted, “Gaining access to the cockpit was not a particularly difficult challenge.” Securing cockpit doors, strengthening onboard security procedures, and banning such potential weapons as small knives and box-cutters were all sensible moves that left freedom completely unscathed.

The corporate profit motive vs. safety
Bag matching, which prevents a bag from flying unless its owner also is aboard, is an effective measure that long has been standard practice in many countries. But U.S. airlines have blocked full implementation domestically, claiming extra costs from resulting flight delays would be crippling. This takes some nerve after grabbing more than $14 billion in taxpayer subsidies above and beyond the $1 billion in losses that were attributed to post – 9/11 shutdowns.

Although bag matching can’t prevent a suicide bombing, unaccompanied luggage bombs caused three of the worst air disasters of the 1980s including the deadliest airline bombing ever, 329 deaths on Air India flight 182. Until 9/11, the airline industry blocked requirements for secure cockpit doors despite 30 documented cockpit intrusions in the two years preceding the attack.

The role of corporate profit-seeking in creating the vulnerabilities that enabled 9/11 remains remarkably under-reported.

Securing our vulnerabilities
We should seek further improvements in airline security, but focusing backward on where terrorists last attacked, rather than identifying and securing other vulnerable targets, may endanger our safety. “Even suicide terrorists are extremely risk-averse,” said Andrew Thomas, safety expert and author of Aviation Insecurity . “They may perceive glory in killing, but not in getting caught.” So as passenger security improves, would-be terrorists increasingly will seek less risky targets, thus demanding we shore up vulnerabilities in other realms (including non-passenger aspects of airport security).

Identifying a terrorist is hard — “much harder than simply finding needles in a haystack,” one Homeland Security official said. It’s relatively easy, however, to identify and secure vulnerable targets that terrorists could strike and cause catastrophic damage.

As the Spain subway bombing demonstrated, physical defenses never will insulate us from harm, but we should pay particular attention to preventing the most deadly scenarios, like attacks on chemical or nuclear plants. Determined efforts at those sites could dramatically improve our resistance to both terrorist threats and accidental catastrophes that could dwarf the carnage wreaked on 9/11. Yet the Bush Administration seems determined to invite disaster by eliminating federal enforcement of many safety standards at nuclear weapons facilities to promote business efficiency.

CAPPS II may distract public attention from the truth that basic security and intelligence failures — not a lack of information or power by law enforcement officials — allowed the 9/11 tragedy to occur. What CAPPS II does not do, however, is make us safer. Congress should stop funding CAPPS II and rethink how to allocate our finite security resources in ways most likely to save lives.

The rest of us should scrutinize new “anti-terror” measures and defend ourselves against the reflexes of the White House and Congress to extend federal dominion in the name of security. Those promoting these expansions of power may be well-intentioned, but ultimately their policies endanger both our freedom and our safety.

Milchen directs ReclaimDemocracy.org, a non-profit organization working to restore citizen authority over corporations and defend constitutional rights. Kaplan has worked for 25 years as an information technology consultant. The authors thank Edward Hasbrouk, Andrew Thomas and Salim Jiwa for their assistance.

Update / Suggested Actions

Victory!  Or is it? On July 14, CAPPS II was pulled from consideration in it’s current form, but we’re not ready to declare the fight over (see our August 4, 2004 feature on the “Registered Traveler” program for details). Nevertheless, we know hundreds of readers sent copies of this article to your U.S. Representative and/or Senators, and you made a difference. Thank you!

Recommended Resources

  • Andrew Thomas’ book Aviation Insecurity explains thoroughly the failings of our air security system and offers solid suggestions for improvement. Look for it at your local independently-owned bookstore.
  • Edward Hasbrouk’s fine website for travelers has blog that covers CAPPS II and other timely issues. He wrote an exhaustive letter (54 pp pdf ) to the TSA outlining objections to CAPPS II.
  • Feb 13 GAO report summary (pdf) or full GAO report (53 pp, pdf)

Corporate Tax Evasion via Offshore Subsidiaries: A Primer

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By Lucy Komisar
First published by Pacific News Service, April 9, 2004

Were you stunned by the revelation, days before your taxes are due, that nearly two-thirds of companies operating in America reported owing no taxes from 1996 through 2000? That over 90 percent of large corporations — with at least $250 million in assets or $50 million in gross receipts — reported owing taxes of only under 5 percent?

The law requires firms to pay 35 percent tax on U.S. profits. Had big business complied, corporate income taxes in 2002 would have been $308 billion instead of only an estimated $136 billion. Do you wish you knew the corporate secret?

Is your town or state suffering from service cutbacks because tax revenues are down? Would you like to cut your tax bite from the current 15 to 35 percent to 5 percent or zero? How do corporations do it?

The General Accounting Office report, commissioned by Senators Carl Levin (D-MI) and Byron Dorgan (D-ND) and released April 5, gave a clue to how. It’s called “transfer pricing,” or improperly shifting income to lower-tax countries.

Firms set up offshore “subsidiaries” which, on their books, perform functions that let them cut onshore taxes. They may sell their own “logo” to the subsidiary and then pay a high price to “rent” it back, deducting “rent” as expense. They may move money to the subsidiary and “borrow” it back, deducting interest payments. If several of their subsidiaries are involved in a deal, the firms may grossly inflate profits assigned to those in offshore tax havens, which levy no or minimal taxes on “profits” claimed there.

The U.S. firm may “trade” with an offshore “shell” it owns — a phony company set up in a tax haven — pretending it’s buying goods or services at a high price or selling its product low, to create deductions. Because the tax haven keeps owners’ names secret, the IRS won’t know the company is “trading” with itself.

Professors Simon J. Pak ( Penn State University ) and John S. Zdanowicz( Florida International University ) examined the impact of over-invoiced imports and under-invoiced exports on 2001 U.S. tax revenues. Would you buy multiple vitamins bought from China at $850 a pound, plastic buckets from the Czech Republic for $973 each, tissues from China at $1,874 a pound, a cotton dishtowel from Pakistan for $154, and tweezers from Japan at $4,896 each?

By contrast, U.S. companies, on paper, were getting very little for their exports. If you were in business, would you sell multiple vitamins to Finland at 61 cents a pound, bus and truck tires to Britain for $11.74 each, color video monitors to Pakistan for $21.90, missile and rocket launchers to Israel for $52.03 and prefabricated buildings to Trinidad for $1.20 a unit?

Comparing claimed export and import prices to real world prices, the professors figured the 2001 U.S. tax loss at $53.1 billion.

We all know that Enron cheated investors by using offshore firms to pretend that money it borrowed was money it earned. We later found it also used shells to hide income from the IRS. Enron had 881 offshore subsidiaries: 692 in the Cayman Islands ; 119 in the Turks and Caicos; 43 in Mauritius and 8 in Bermuda . Enron had no office in the Cayman’s, but Box 1350 there received mail for 500 affiliates. Enron’s 1996 through 2000 pretax U.S.profits were $1.8 billion, but it paid no tax in four of those five years. It even got a rebate! Because of fancy paperwork that invented tax losses even while it was boasting of profits to investors, Enron got back $381 million from the IRS.

Bob McIntyre, who heads the Washington-based Citizens for Tax Justice, says that in 1996-2000, Goodyear’s profits were $442 million, but it paid no taxes and got a $23-million rebate. Colgate-Palmolive made $1.6 billion and got back $21 million. Other companies that got rebates in 1998 included Texaco, Chevron, PepsiCo, Pfizer, J.P. Morgan, MCI Worldcom, General Motors, Phillips Petroleum and Northrop Grumman. Microsoft, run by the world’s richest man, reported $12.3 billion U.S income in 1999 and paid zero federal taxes. In the past two years, Microsoft paid only 1.8 percent on $21.9 billion pretax U.S. profits.

There are some 55 “offshore” zones, including legendary Switzerland ; the Caribbean with money-laundries Grand Cayman , Antigua , Aruba and the British Virgin Islands ; European favorites Luxembourg , Liechtenstein , Monaco , Austria , Cyprus ; and British Channel Islands Jersey, Guernsey , Isle of Man. Many banks in “offshore” centers are subsidiaries of major international banks, including Citibank, Bank of New York and Credit Suisse.

Why does Washington tolerate the offshore tax evasion system? Because powerful people benefit. With President Bush on its board, Harken Energy set up an offshore network that cut its taxes. White House spokesman Dan Bartlett defended Harken for seeking “tax competitiveness,” the preferred euphemism. When Vice President Cheney ran Halliburton, it increased its offshore subsidiaries from 9 to at least 44.

Lucy Komisar is a freelance journalist who is writing a book about the offshore bank and corporate secrecy system.

© 2004 Pacific News Service 

More features on corporate tax evasion and subsidies

Will Corporate Theft from Workers Be Taken As Seriously as Swindling Investors?

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By Steven Greenhouse
First published by The New York Times, April 4, 2004

Editor’s note: We’ve known the problem documented here is widespread because we’ve received numerous e-mails and calls testifying to the problem over the past few years, but we lacked the resources to investigate. We’re encouraged that a major media outlet finally has done one adequate, albeit superficial, report. Now we will see whether the story gets the follow-up it deserves from the media and the justice system.

As you read, note that there is no mention of any significant legal consequences to prevent corporate executives from engaging in these crimes. As a subsequent letter to the Timeseditor noted, “The toothlessness of the law is the reason for its constant violation. Regardless of the size of the offense, the culprits return to their business, a bit lighter in the pocketbook but not much the worse for the attempt.”

NY Times title: Altering of Worker Time Cards Spurs Growing Number of Suits

As a former member of the Air Force military police, as a play-by-the-rules guy, Drew Pooters said he was stunned by what he found his manager doing in the Toys “R” Us store in Albuquerque.

Inside a cramped office, he said, his manager was sitting at a computer and altering workers’ time records, secretly deleting hours to cut their paychecks and fatten his store’s bottom line.

“I told him, `That’s not exactly legal,’ ” said Mr. Pooters, who ran the store’s electronics department. “Then he out-and-out threatened me not to talk about what I saw.”

Mr. Pooters quit, landing a job in 2002 managing a Family Dollar store, one of 5,100 in that discount chain. Top managers there ordered him not to let employees’ total hours exceed a certain amount each week, and one day, he said, his district manager told him to use a trick to cut payroll: delete some employee hours electronically.

“I told her, `I’m not going to get involved in this,’ ” Mr. Pooters recalled, saying that when he refused, the district manager erased the hours herself.

Experts on compensation say that the illegal doctoring of hourly employees’ time records is far more prevalent than most Americans believe. The practice, commonly called shaving time, is easily done and hard to detect – a simple matter of computer keystrokes – and has spurred a growing number of lawsuits and settlements against a wide range of businesses.

Workers have sued Family Dollar and Pep Boys, the auto parts and repair chain, accusing managers of deleting hours. A jury found that Taco Bell managers in Oregon had routinely erased workers’ time. More than a dozen former Wal-Mart employees said in interviews and depositions that managers had altered time records to shortchange employees. The Department of Labor recently reached two back-pay settlements with Kinko’s photocopy centers, totaling $56,600, after finding that managers in Ithaca, N.Y., and Hyannis, Mass., had erased time for 13 employees.

“There are a lot of incentives for store managers to cut costs in illegal ways,” said David Lewin, a professor of management who teaches a course on compensation at the University of California, Los Angeles. “You hope that would be contrary to company practices, but sometimes these practices become so ingrained that they become the dominant practice.”

Officials at Toys “R” Us, Family Dollar, Pep Boys, Wal-Mart and Taco Bell say they prohibit manipulation of time records, but many acknowledge that it sometimes happens.

“Our policy is to pay hourly associates for every minute they work,” said Mona Williams, vice president for communications at Wal-Mart. “With a company this large, there will inevitably be instances of managers doing the wrong thing. Our policy is if a manager deliberately deletes time, they’re dismissed.”

Compensation experts say that many managers, whether at discount stores or fast-food restaurants, fear losing their jobs if they fail to keep costs down.

“A lot of this is that district managers might fire you as soon as look at you,” said William Rutzick, a lawyer who reached a $1.5 million settlement with Taco Bell last year after a jury found the chain’s managers guilty of erasing time and requiring off-the-clock work. “The store managers have a toehold in the lower middle class. They’re being paid $20,000, $30,000. They’re in management. They get medical. They have no job security at all, and they want to keep their toehold in the lower middle class, and they’ll often do whatever is necessary to do it.”

Another reason managers shave time, experts say, is that an increasing part of their compensation comes in bonuses based on minimizing costs or maximizing profits.

“The pressures are just unbelievable to control costs and improve productivity,” said George Milkovich, a longtime Cornell University professor of industrial relations and co-author of the leading textbook on compensation. “All this manipulation of payroll may be the unintended consequence of increasing the emphasis on bonuses.”

Beth Terrell, a Seattle lawyer who has sued Wal-Mart, accusing its managers of doctoring time records, said: “Many of these employees are making $8 an hour. These employees can scarcely afford to have time deleted. They’re barely paying their bills already.”

In the punch-card era, managers would have had to conspire with payroll clerks or accountants to manipulate records. But now it is far easier for individual managers to accomplish this secretly with computers, payroll experts say.

Mr. Pooters, a father of five who left the Air Force in 1997 for a career in retailing, talks with disgust about photocopied Toys “R” Us records that he said showed how his manager made it appear that he had clocked out much earlier than he had.

“Unless you keep track of your time and keep records of when you punch in and punch out, there’s no way to stop this,” he said.

After leaving Toys “R” Us and Family Dollar, Mr. Pooters moved to Indiana and took a job as an account manager with Rentway, a chain that leases furniture and electronics. There, he and a co-worker, William Coombs, said, the workload was so intense that they typically missed four lunch breaks a week. Nonetheless, they said, their manager inserted a half-hour for lunch into their time records every day, reducing their pay accordingly.

“They told us to sign the payroll printouts to confirm it was right,” Mr. Pooters said, describing a confrontation last November. “When we protested about what happened with our lunch hours, the manager said, `If you don’t sign, you’re not going to get paid.’ ”

Mr. Coombs said: “They removed our lunch hours all the time. We were told if we didn’t sign the payroll sheets, we’d be terminated.”

Larry Gorski, Rentway’s vice president for human resources, said his company strictly prohibited erasing time. “As soon as we hear this is going on, we jump all over it,” he said.

Shannon Priller, who worked at a Family Dollar store in Rio Rancho, N.M., sheepishly acknowledged that she sometimes watched her district manager erase her hours. “The manager and I would sit there and go over everybody’s time cards,” she said. “We were told not to go over payroll, or we would lose our jobs. If we were over, my hours would get shaved.”

Some weeks, she said, she lost 10 or 15 hours, and her 6 a.m. clock-in time became 9 a.m. Patricia Bauer, a clerk at the store, said her paycheck was sometimes cut to under 30 hours on weeks when she worked 40.

Like Mr. Pooters, these women have joined a lawsuit that accuses Family Dollar of erasing time and requiring off-the-clock work. “It needs to stop,” said Ms. Priller, who now cleans houses.

Kim Danner said that when she ran a Family Dollar store with eight employees in Minneapolis, her district manager urged her to erase hours so that she never paid overtime or exceeded her allotted payroll. Federal law generally requires paying time-and-a-half to nonmanagerial employees who work more than 40 hours a week.

Ms. Danner said her employees could not do all the unloading, stocking, cashier work and pricing of merchandise in the hours allotted. “The message from the district manager was, basically, `I don’t care how you do it, just get it done,’ ” she said.

So she altered clock-out times and inserted half-hour lunch breaks even when employees had worked through them. “I felt horrible that I was doing this,” she said. “I felt pressured, absolutely. If I refused, I would have been terminated easily.”

After five months, she quit.

Sandra Wilkenloh, Family Dollar’s communications director, declined to respond to the lawsuit, but said, “Family Dollar’s policy is to fully comply with all wage and hour laws and to take appropriate disciplinary action in any case where we determine that such policy has been violated.”

She said Family Dollar maintained a hot line that employees could call anonymously to report wage violations.

Rosann Wilks, who was an assistant manager at a Pep Boys in Nashville, said she was fired in 2001 after refusing to delete time. She said her district manager told her, “Under no circumstances at all is overtime allowed, and if so, then you need to shave time.”

At first, she bowed to orders and erased hours. Some employees began asking questions, she said, but they refused to confront management. “They took it lying down,” she said. “They didn’t want to lose their job. Jobs are hard to find.”

When she started feeling guilty and confronted her district manager, she said, “It all came to a boil. He fired me.”

Bill Furtkevic, Pep Boys’ spokesman, said his company did not tolerate deleting time.

“Pep Boys’ policy dictates, and record demonstrates, that any store manager found to have shaved any amount of employee time be terminated,” he said. He added that the company’s investigation “revealed no more than 21 instances over the past five years where time shaving” had occurred.

More than a dozen former Wal-Mart employees said time records were altered in numerous ways. Some said that when they clocked more than 40 hours a week, managers transferred extra hours to the following week, to avoid paying overtime. Federal law bars moving hours from one week to another.

Wal-Mart executives acknowledged that one common practice, the “one-minute clock-out,” had cheated employees for years. It involved workers who clocked out for lunch and forgot to clock back in before finishing the day. In such situations, many managers altered records to show such workers clocking out for the day one minute after their lunch breaks began – at 12:01 p.m., for example. That way a worker’s day was often three hours and one minute, instead of seven hours.

Ms. Williams, the Wal-Mart spokeswoman, said Wal-Mart had broadcast a video to store managers last April telling them to halt all one-minute clock-outs. Under the new policy, when workers fail to clock in after lunch, managers must do their best to determine what their true workday was.

In interviews, five former Wal-Mart managers acknowledged erasing time to cut costs. Victor Mitchell said that as an assistant manager in Hazlehurst, Miss., in 1997, he frequently shaved time.

“We were told we can’t have any overtime,” he said. “It’s what the other assistant managers were doing, and I went along with it.”

Mr. Mitchell said the store’s manager ordered them to stop. But he said that in 2002, after becoming manager of a Wal-Mart in Bogalusa, La., a new district manager ordered him to erase overtime. He said he refused.

Ms. Williams said Wal-Mart had increased efforts to stop managers from shaving time or allowing off-the-clock work.

Wal-Mart has circulated a “payroll integrity” memo, saying that any worker, “hourly or salaried, who knowingly falsifies payroll records is subject to disciplinary action up to and including termination.”

Employees at Wal-Mart and other companies complain that they receive no paper time records, making it hard to challenge management when their paychecks are inexplicably low.

Ms. Danner, the former Family Dollar manager, praised the system at the McDonald’s restaurant she managed for seven years. At day’s end, she said, employees received a printout detailing total hours worked and when they clocked in and out.

“We never had any problems like this at McDonald’s,” she said.

The Times followed this story with the following “correction”: A front-page article on Sunday about doctoring of payroll time records misstated Wal-Mart’s response to claims by some former employees that managers had sometimes altered the records of workers who forgot to clock back in after lunch, to make it appear that their workday ended at lunchtime. Although Wal-Mart acknowledged the practice, called the “one-minute clock-out,” it said the intent was to draw the workers’ attention to problems with their time records, not to cheat employees.

© 2004 New York. Times Co.

More articles and studies on Wal-Mart

More articles on Corporate Accountability

Democracy Run Amok? An Excess of Ballot Initiatives Plagues California

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By Los Angeles Times Editorial Board 
First published by the L.A. Times, April 4, 2004

Editor’s note: Ballot initiatives theoretically allow democracy to happen in its purest form. But what happens when anyone with a sufficient bank account — from self-serving corporations to publicly-minded activists — can spend their pet issue onto the state ballot? We don’t have a pat answer to the problems explored in this editorial. What do you think? If you’d like to learn more about ballot initiatives and referendums, visit ballotwatch.org. 

Direct democracy is running amok in California. Three propositions already are qualified for the Nov. 2 general election ballot, three initiatives have enough signatures and are awaiting official certification, and 40 others are still being circulated. Not all will make the ballot, probably including a proposal to require the state to establish a population-control program. Another would allow use of the Bible as a textbook in public schools. But an unusually large number of proposals have substantial backing from reputable groups like the state Chamber of Commerce, statewide organizations of California cities and counties, individual state legislators and activist organizations. They are paying millions to get the signatures needed to make the November ballot. Many will succeed.

This may be good for their causes, but it’s bad for California. It would be one thing if these were true grass-roots uprisings by the voters to right evils created in Sacramento. But that day is long past. The current crop of initiatives is an unhealthy flowering of special interests using their money to gain advantage in state government, including the earmarking of billions of dollars in tax funds for narrow uses. Ballot-box budgeting may help their individual causes – and many of them are worthy – but they diminish the ability of the governor and the Legislature to distribute state funds in a balanced way to meet as many needs as possible.

There’s only one course left to stem the ballot-clogging tide. Say no. Turn away from the clipboard-laden folding tables at supermarkets and on street corners. Decline to sign, no matter how alluringly the cause is described. Between now and April 16 – the deadline for gathering initiative signatures for the Nov. 2 ballot – it will be difficult to go to any public spot without stumbling over people collecting signatures of registered voters for up to $3.50 per name, more than triple the amount just a few years ago.

Another measure would simplistically cut back the workers’ compensation program, a complex issue that should be worked out in the Legislature, not at the ballot box.

One tax measure already on the ballot, co-sponsored by Assemblyman Darrell Steinberg (D-Sacramento), would levy a 1% income tax surcharge on millionaires to raise about $600 million a year earmarked for mental health services.

Another, still in circulation, would add a telephone bill surcharge of more than $500 million to pay for emergency medical care. A third, sponsored by actor Rob Reiner, would raise property taxes on businesses by an estimated $6 billion a year to pay for universal preschool for children, boost teacher salaries and buy textbooks.

Any reasonable person would want to put more money into those programs. But every dollar diverted to those interests is a dollar unavailable for child care or aid to the poor and disabled, or for solving the state’s transportation problems.

Ballot-box legislating – often swayed by false or misleading advertising – is no way to run a state of 36 million people and such diverse needs.

© 2004 Los Angeles Times

Related Feature: Corporations Taking the (Ballot) Initiative 

Wal-Mart Loses a Battle, But Why Was It Allowed to Fight?

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By Jeff Milchen
April, 2004

Wal-Mart Inc. executives aren’t used to losing, but the world’s largest corporation took a beating from citizens in the Los Angeles suburb of Inglewood. The company’s ballot initiative, which would have negated Inglewood City Council’s rejection of Wal-Mart’s proposed “Supercenter,” was crushed by voters on April 6 despite Wal-Mart spending a mind-boggling $220 for each “yes” vote it received. Unknown additional funds were spent on a barrage of image ads in the region featuring black and Latino actors, reflecting Inglewood’s population.

Regardless of one’s opinion of Wal-Mart, all of us who value democracy should be pleased that citizens rejected the company’s blatant attempt to simply buy its way out of an unfavorable decision by local officials. The Inglewood result was the exception to the rule, however. So we might question why we allow any corporation to employ ballot initiatives — theoretically democracy in its purest form — as weapons to overturn decisions of our democratically elected representatives.

Corporations were forbidden from spending any money to influence government or elections in the early days of our nation, for good reason. When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country’s founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role while setting up barriers to prevent them from corrupting politics. In most states, corporations could not make any political or charitable contributions nor spend money to influence law-making.

In the 1800s, corporations gradually dismantled those barriers. By the end of the century, their lawyers were arguing to the U.S. Supreme Court that corporations were legally persons entitled to constitutional rights. In 1886, a Supreme Court bench heavy on railroad industry lawyers ignored the fact that corporations never are mentioned in our Constitution and, without ever explicitly ruling on the matter, created “corporate personhood.” Soon, corporations had perverted the Bill of Rights itself to gain its protections — even before women and minorities had full personhood rights — and have since used this power to deny political rights to real human beings.

Yet, as recently as the 1970s, corporations faced meaningful limits to their political power — limits that a corporate lawyer named Lewis Powell wanted to remove. Powell wrote a memo to the U.S. Chamber of Commerce in 1971, arguing that big business should seek greater power “aggressively and with determination, without embarrassment.” Powell specified, “The judiciary may be the most important instrument for social, economic and political change.”

A month later Richard Nixon appointed Powell to the Supreme Court, where he went on to write the majority opinion in First National Bank of Boston v. Bellotti, a 1978 decision that created a First Amendment “right” for corporations to influence ballot initiatives and other political campaigns. The Bellotti decision is one major reason why corporations now dominate national politics and why companies like Wal-Mart frequently impose the will of corporate executives on communities around the country.

Until recently, Wal-Mart stuck to exerting its political power at the local and state levels, but this year the world’s largest corporation is predicted to become the nation’s largest corporate investor in candidates for federal offices as well. With the additional power to pressure any number of its one million non-unionized employees to “voluntarily” support campaigns, Wal-Mart’s power soon could rival even the clout of railroad corporations in the “robber baron” era of the late 1800s.

While Wal-Mart has used ballot initiatives elsewhere to trump decisions by local governments (including one in California last month), the Inglewood initiative went far beyond any previous attempt. The corporation literally attempted to exempt itself from all local zoning, planning and environmental regulations. The power grab was too extreme to pass this time, but as corporations continue to mold the culture and law to fit corporate agendas rather than citizens’ interests, what was an outrage one year becomes the law soon after.

Citizens still win a few skirmishes, but the larger struggle — one to determine whether citizens or corporations will control the future of our communities and country — will depend on changing the rules of engagement. The reasons that drove our country’s founders to keep business creations subordinate to democracy are even more compelling today. Until we return corporations to exclusively business activities and revoke their ill-gotten political “rights,” democracy will be an unfulfilled, fading ideal.

Jeff Milchen directs ReclaimDemocracy.org, a grassroots organization devoted to restoring citizen authority over corporations. Jeffrey Kaplan of our San Francisco area chapter contributed to this article.

This article was first published via Pacific News Service.

See our proposed Constitutional Amendment to revoke corporate political “rights.”


USDA and Beef Industry Giants Fight Small Producer Wanting to Ensure Safe Meat

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Beef firm faces perplexing resistance to mad cow tests

By USA Today editorial staff 
First published by the USA Today, March, 26, 2004

Creekstone Farms Premium Beef is a small producer of high-quality beef in Kansas. But it’s making a big point about mad cow disease. It wants to privately test all of the cattle it slaughters for the illness, which can cause a fatal brain disease in humans who eat infected meat. The way Creekstone Farms sees it, 100% testing would reassure U.S customers. The company also says it is talking with Japan about restarting exports there, where total testing is required.

But the firm has run into surprising obstacles: from the federal government, which has pledged to do everything possible to detect the disease, and from the meat industry, which has scrambled to keep consumer confidence since December. That’s when the first U.S. case of mad cow was found in a Washington cow imported from Canada.

Their reasoning is as confounding as government foot-dragging over approving private testing. And it ill-serves confused customers who are looking for stronger assurances that the meat they buy is safe.

The U.S. Department of Agriculture (USDA) currently does not allow such private testing for mad cow disease. And it claims that a new government testing system it approved this month is perfectly adequate. More than 10 times the number of cattle will be tested for mad cow under the new system, but the government still will be testing less than 1% of the 37 million cattle slaughtered in the U.S. each year. That falls far short of the 100% testing Creekstone Farms is proposing and Japan provides.

Other beef producers complain that Creekstone Farms’ 100% testing plans would set an expensive precedent. They worry that consumers might be misled into thinking an untested cut of beef isn’t safe. But food producers ranging from organic growers to free-range farmers already market their products based on the idea that food produced in healthier ways or with added safeguards is worth paying for. Creekstone Farms’ proposal taps into the same logic.

Other beef producers and the USDA say going beyond the new system is unnecessary. But hundreds of seemingly healthy cattle in Europe have tested positive for mad cow disease.

Rather than blocks on private efforts to strengthen beef testing, what’s really needed are tougher test regimens for all U.S. cattle. U.S. consumer advocates say this requires testing all cattle over 20 months, since current tests can’t detect the long-incubating disease in younger cattle.

In contrast, the new U.S. system will test up to 268,000 cattle over a period of 18 months, including all that appear sick plus a random sample of about 20,000 others.

Americans are willing to fund a higher level of reassurance. A January poll by the Consumers Union showed that 95% of adults would pay 10 cents more a pound for tested beef. Testing every slaughtered cow would cost about six cents per pound.

Scientists are developing promising, inexpensive mad cow tests, including a simple blood test. Until they are perfected, letting Creekstone Farms carry out full testing under USDA oversight not only seems reasonable, it also could provide an important measure of the usefulness of 100% testing.

© 2004 USA Today

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