Kroger, the major grocery chain, has pointed to its connections with local growers to defend a recent proposed merger. But one of those growers has been linked to a huge human trafficking scheme to maintain a steady supply of exploited farmworkers.

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Multibillion-dollar retail giant Kroger Company defended its proposed takeover of rival Albertsons Companies, Inc. by highlighting its partnership with a blueberry grower that hired a labor contractor accused of orchestrating one of the largest human trafficking rings in modern US history.

Though the blueberry grower in question, Southern Press and Packing, is one of many suppliers that work with the grocery giant, the situation spotlights merger opponents’ claims that Kroger has failed to guarantee minimum standards for workers in its supply chain — a situation they say could worsen if the company is allowed to grow exponentially larger.

“As it is, Kroger is not doing what they should as a very powerful corporation,” said Lupe Gonzalo, a staff member for the farmworker-led human rights group the Coalition of Immokalee Workers (CIW), which has helped expose human trafficking cases involving more than 1,200 migrant workers. “Imagine them as an even more powerful company [and] not using that power to grant human rights to workers in their supply chain.”

Federal regulators have been evaluating the proposed merger and are expected to soon decide whether they will oppose it.

In September, while pledging to increase the number of local products in its stores if the merger went through, Kroger touted four local growers by name out of 1,500-plus suppliers nationwide. One of those was Georgia-based Southern Press and Packing, an eighteen-year-old business that sells blueberries and manufactures a juice brand called Regenerate that at one point was offered in a majority of Georgia public schools.

“From Stemilt cherries in Washington and Sun Pacific citrus in California to Talbott Farms Palisade Peaches in Colorado and Southern Press blueberries in Georgia, we know just how important local products are to our customers,” said Kroger senior vice president Stuart Aitken in the release. “We are excited to provide more opportunities for local producers to grow their businesses.”

According to public records, Southern Press hired Maria Leticia Patricio’s labor contracting firm to find dozens of seasonal employees to work in its fields for much of 2020. Less than a year later Patricio was indicted as the alleged ringleader of a $200 million human trafficking ring.

Prosecutors claim the “Patricio transnational criminal organization” subjected dozens of Mexican and Central American workers to “modern-day slavery” by holding their identification documents hostage, forcing them to work for little or no pay, subjecting them to dangerous living conditions, and threatening them and their families with deportation and violence. The indictment states that those involved in the operation kidnapped, threatened at gunpoint, and repeatedly raped some of their victims, and that at least two people died because of the working conditions.

Patricio, who is awaiting trial, has pleaded not guilty to the crimes.

Kroger, including company CEO Rodney McMullen, did not respond to multiple emails and phone calls seeking comment. When reached by phone and asked about contracting with Patricio in 2020, a representative for Southern Press, office manager Amy Nimmer, said that its CEO “does not recognize that name at all,” and did not respond to a question about contracting with Patricio’s company, Rojas Avila Harvesting LLC. Southern Press also did not respond to a list of questions emailed by us.

Barry Paschal, a representative for the US Attorney’s office in Savannah, Georgia, responded to an inquiry about Patricio’s case by referring us to the public record.

At least three other Kroger suppliers have also been accused of profiting from human trafficking and systemic wage theft since October 2021. One case has led to multiple criminal convictions; another involves more than $200,000 in fines and penalties for wage theft.

In December, US senator Ron Wyden, an Oregon Democrat, urged the Federal Trade Commission (FTC), the regulatory agency reviewing the proposed merger, to attempt to block the deal. Among other concerns, Wyden suggested in a press statement that the consolidation could result in “fewer economic opportunities for Oregon’s small farmers.”

Last summer, the FTC said that it would analyze the proposed merger’s effect on “farming” among other supply issues. As part of the agency’s ambitious new efforts to crack down on corporate monopolies, officials warned they can sue to stop any merger that stymies labor market competition. The FTC is expected to announce its decision on litigation by January 17.

California attorney general Rob Bonta has also vowed to examine the merger’s likely impact on agriculture. He is one of three state attorneys general considering lawsuits to stop the deal.

Critics say Kroger doesn’t have meaningful controls to disqualify abusive vendors and contractors. For years, the corporation has failed to join the Fair Food Program, an independent workplace standards compliance program founded by CIW, which requires suppliers to pay wage premiums and abide by a code of conduct with enforcement mechanisms like audits and whistleblower hotlines. Other major corporate retailers participate in the program, including Trader Joe’s, Whole Foods, and Walmart.

“Modern-day slavery and forced labor are effectively nonexistent in these Fair Food fields,” noted a June 2023 Harvard Law School report on the program’s efficacy, which found that farmworkers covered by Fair Food agreements receive 60 to 100 percent higher pay.

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Troubling Crop Patterns

The partnership between Southern Press and Kroger dates back to at least 2016, when the blueberry company’s CEO appeared in a TV commercial for the grocery chain.

In the ad, Southern Press CEO Shawn Davis boasts of his company’s devotion to fresh produce between rows of blueberry bushes in the Georgia sunshine.

“Sometimes, within four to five hours, we have the fruit out of our fields and into our customers’ hands,” Davis said.

But the ad’s farm-to-fork romance clashes with the experiences of many wage laborers who make US farms productive, especially the migrant workers brought to the country through the alleged human trafficking ring that Patricio reportedly helped orchestrate.

Patricio, one of twenty-three individuals indicted for the alleged racket, is accused by federal prosecutors of leading the group’s efforts to apply for seasonal visas for more than seventy-one thousand migrant workers through a temporary work visa system for the agriculture industry called the H-2A program.

At the time, Patricio’s brother Jorge Gomez worked as Georgia’s Department of Labor’s State Monitor Advocate, meaning he was in charge of advocating for migrant farmworkers and managing all related worker complaints and housing inspections. Law enforcement hasn’t accused Gomez of wrongdoing, but during the investigation a federal agent testified that Georgia labor officials were bribed as part of the criminal enterprise, and officers searched Gomez’s home.

Growers and contractors can apply to sponsor H-2A visas if they can show the US Department of Labor that they “anticipate a shortage of domestic workers.”

Worker advocates say many of those granted entry on H-2A visas — about 90 percent come from Mexico, many from impoverished rural areas — are vulnerable to human trafficking because their immigration status and housing are tied to their employment. In 2019, a survey conducted by the migrant worker advocacy group Centro de los Derechos del Migrante found that 32 percent of H-2A workers “did not feel free to quit,” while 34 percent “experienced restrictions on their mobility.”

Growers and contractors are required to reimburse workers for travel costs, but many employers use debt and deportation threats as tools of coercion, which is what happened in the Patricio case, according to federal prosecutors.

Industry advocates say that the H-2A program is essential for keeping family farms afloat when they can’t find other workers, but a recent investigation by us revealed that it’s not just family farms — billionaires and institutional investors also sponsor H-2A farmworker visas.

In February 2020, the US Department of Labor posted a job listing for a labor contracting company registered under Patricio’s name that sought H-2A visas for seventy-four workers for “all general farm labor related to: blueberries.” A related filing listed Southern Press as their destination.

Another labor contracting company registered under Patricio’s name applied to sponsor seasonal visas for 148 workers in 2019 and2020, in filings that listed an address associated with a company called Creekside Berry Farms. Creekside Berry Farms is co-owned by a former Southern Press executive.

Around the time Patricio was finding workers for Southern Press and Creekside, she allegedly played a critical role in a scheme that netted its participants $200 million in profit, according to federal prosecutors.

Prosecutors meticulously detailed the alleged racket. Their charging documents state that the operation, which started in November 2015, was built on “thousands” of trafficked H-2A workers performing backbreaking tasks for little or no money, sometimes at gunpoint. Prosecutors said that two workers entrapped in the scheme died on the job, and others were repeatedly raped or forced to live in squalid, cramped trailers or “in a work camp surrounded by an electric fence.”

The Georgia-based operation allegedly stretched into other states and across the US border in Mexico, Guatemala, and Honduras. According to prosecutors, such activities included the unlawful sale of “approximately thirty workers to a conspirator in Indiana for $21,481.” Conspirators were said to have laundered millions buying land, houses, and businesses in cash and funneling gains through a Florida casino.

The indictments came after a multiyear investigation involving more than two hundred law enforcement officials codenamed “Operation Blooming Onion,” after the onion fields where some of the alleged victims worked. Investigators claim to have identified at least 102 victims of the defendants in southern Georgia.

Again, Patricio has pleaded not guilty to her role in the alleged conspiracy, and her trial hasn’t started yet. But last fall, four of the twenty-three individuals alleged to have conspired with Patricio pleaded guilty to some of the crimes, for which they received jail sentences ranging from one to two years and were ordered to pay victims hundreds of thousands of dollars in restitution. What’s more, in March 2022, three men were convicted in a related case, and one of them was sentenced to thirty years in prison.

This isn’t the only instance in which Kroger suppliers have been associated with alleged labor law violations.

In October 2021, Mastronardi Produce, a tomato supplier for Kroger and other major retailers, was blocked from importing a shipment from Mexico after US customs officials accused “two large Mexican agribusinesses,” including one of Mastronardi’s partners, “of forced labor abuses,” according to the Los Angeles Times. 

In 2022, four Florida residents working for Los Villatoros Harvesting LLC, a Kroger and Walmart watermelon supplier, pleaded guilty to charges related to a “conspiracy to subject [over a dozen] migrant farmworkers to forced labor,” according to the Department of Labor.

And in September, labor officials revealed that a Kroger supplier, Colorado-based grower Star Farms, was under investigation after owner Angelo Palombo was accused of wage theft, and of refusing to provide his H-2A workers with clean water and sanitary bathrooms.

Palombo has also racked up at least $209,000 in back-wage payment orders and fines for violating federal labor law over the past two decades, the Denver Post reported.

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Refusing a Proven Solution

According to Kroger, the company has established “a Zero Tolerance policy for human rights violations like child labor, forced labor, discrimination, and safety violations such as blocked exits.”

“If suppliers do not live up to our Code [of Conduct],” the policy states, “we will not do business with them.”

But Kroger has never disclosed information about the enforcement of its code, including information about in-person audits of suppliers, worker interviews, and grievance resolution mechanisms, according to Domini Impact Investments, an activist mutual fund.

The fund, which uses shareholder advocacy as a tool to try to force corporations to be more socially responsible, made the allegations in a shareholder proposal from 2022, which called “modern-day slavery . . . a risk for Kroger.” The proposal cited the Patricio racketeering case, the Mastronardi incident, and a guilty plea in the case involving the watermelon supplier.

“Even though they say they’re protecting workers rights, that’s not really what’s happening through this policy,” said CIW’s Gonzalo. “In the last few years, we’ve seen a number of modern-day slavery and forced labor cases where Kroger has bought from suppliers, which are places that, according to their policy, they shouldn’t be buying from.”

The Domini proposal called on Kroger to remedy the problem by joining CIW’s Fair Food Program. Under the program, which was established in 2011, participating suppliers subject themselves to audits and site visits by the Fair Food Standards Council, a body created to enforce program rules.

Workers on farms that participate in the Fair Food Program are informed of their rights through on-the-clock educational sessions. They are also able to report rule violations to a twenty-four-hour hotline staffed by the Fair Food Standards Council. Suppliers who repeatedly violate the rules are expelled. Growers that comply with the program’s rules receive a premium from participating buyers.

The premium has delivered $44 million to participating farms since 2011, at least 87 percent of which goes directly to workers, according to the Fair Food Standards Council. The council also says it has resolved thousands of worker complaints, recovering roughly $500,000 in lost wages in the process.

“This is a program that has been recognized, it has been shown to work to protect workers rights, and it’s really one of the only programs that is protecting workers in this way,” said Gonzalo, who first experienced the program’s benefits as a farmworker herself.

“It was a real change,” she said. “We had a voice to report problems that we might have, a voice to report sexual harassment. It was completely different.” Gonzalo now does educational outreach for the Fair Food Program, following in the footsteps of the staffer who first told her about the program in 2011.

“It woke up my interest,” she said. “Before this, I had never heard about our rights, or an organization that was protecting our rights. Particularly as a woman working in the fields confronting sexual harassment, there hadn’t been anything you really could do about that.”

Kroger has not joined the Fair Food Program, and refused to let its shareholders vote on the Domini proposal. Last year, in its petition to the Securities and Exchange Commission to allow it to exclude the proposal from shareholder proxy voting materials, the company noted, “The Proposal, if adopted, would . . . hinder management’s fundamental ability to run the company’s day-to-day operations.” In April, the commission granted the exclusion.

Albertsons also doesn’t participate in the Fair Food Program, though the company has demonstrated some concern about vendor malfeasance. Safeway, a grocery store owned by Albertsons, dropped Star Farms as a supplier in October after the Denver Post reported on the farm’s record. Kroger made no such commitment.

And in regards to the Mastronardi case, Walmart and Albertsons declined to respond to specific questions about their reliance on the tomato supplier. But a spokesperson for Kroger, when asked by the Los Angeles Times if the company had used Mastronardi in the past year, replied: “Not to our knowledge.”

Kroger’s response was cited by the Domini shareholder proposal, which noted that Kroger “may lack adequate oversight or be ineffective at addressing forced labor and other human rights abuses,” exposing the company to “to legal and reputational risk.”

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“A Threat to Farm Suppliers”

In October 2022, Kroger, which is headquartered in Cincinnati, Ohio, and made $2.2 billion in profit that year from 1,200-plus grocery stores in sixteen states, formalized its $24.6 billion proposal to takeover Albertsons, which made $1.6 billion that year. The takeover, which needs to be approved by regulators, would result in Kroger’s market share jumping to about 22 percent of the entire US grocery industry, second only to Walmart.

If regulators reject the merger proposal, Kroger can appeal the decision to the federal judiciary, which has been skeptical of FTC antitrust actions during the Biden administration.

Stop the Merger, a broad coalition of advocacy groups opposed to the deal, has warned on its website that the resulting company would “no doubt create a monopoly in the grocery industry, leading to store closures, thousands of lost jobs, and higher food prices.”

The group has also warned that “the merger also poses a threat to farm suppliers.” Economists have found that a reduction in competing wholesale buyers puts downward pressure on wages throughout the supply chain. Studies, for example, have shown the widespread drag on wages caused by Walmart’s market power.

If agricultural suppliers are squeezed as a result of the Albertsons takeover, farmworkers will undoubtedly bear much of the pain. Agricultural employees don’t enjoy most federal workplace protections and are paid some of the lowest wages in the United States, despite being considered essential labor.

Workers advocates say the Patricio case exemplifies how for migrant workers on H-2A visas, the situation can be even worse.

“As long as there aren’t protections for workers, and workers are afraid to speak up, there are most likely going to be cases of forced labor,” Gonzalo noted. “There are going to be women who are victims of sexual harassment because they don’t have the protections necessary. Companies like Kroger can do a lot to change that and they haven’t.”

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You can subscribe to David Sirota’s investigative journalism project, the Lever, here.

This post was originally published on Jacobin.

Joe Biden’s Inflation Reduction Act is expected to spend $369 billion on green building investments. One insulation manufacturer — notorious for its role in the 2017 Grenfell Tower fire — is greenwashing itself to receive lucrative US tax benefits.

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The excitement was in the air at this year’s Greenbuild International Conference and Expo in Washington, DC, in late September. About a year earlier, the Inflation Reduction Act (IRA) had been signed into law by President Joe Biden, establishing new tax benefits to boost green-friendly construction. Vendors at the world’s largest green building symposium were buzzing.

The expo featured rows of exhibitions on the environmental virtues of companies involved with every stage of the construction process, from insulated concrete manufacturers to wastewater management companies. Lectures and panel discussions peppered the sprawling convention center hall, featuring industry luminaries waxing poetic about the challenges and promises of green capitalism. Many of these companies will likely benefit from the IRA; the federal government is expected to spend about $369 billion on green building investments because of the law’s tax provisions.

One company that appeared particularly giddy about the new law was an Irish building products manufacturer, the Kingspan Group, known primarily for its insulation panels. A Kingspan representative at the expo said firms will know more about any potential benefits from the IRA in the next eighteen months, as tax authorities determine eligibility in practice. But the company — a major player in the green building materials industry, according to market analysts — is positioning itself to reap the rewards.

In the weeks leading up to Greenbuild, Kingspan proposed a merger with its industry rival Carlisle Companies, an Arizona-based construction firm. Carlisle’s environmentally certified roofing products will also be eligible for IRA incentives, according to a Carlisle company rep at the expo. (Carlisle turned down the proposal, before encouraging the Irish firm to submit a higher offer.) And at Greenbuild itself, Kingspan sponsored four booths and a panel discussion featuring federal officials from the Environmental Protection Agency (EPA) and the General Services Administration.

But according to critics, Kingspan is a textbook example of a corporation greenwashing its own harmful environmental practices while also glossing over criticism of its safety and labor practices. Now, as an ostensibly “green” operation, the company is likely to receive lucrative US tax benefits.

Kingspan’s most controversial moment came in December 2020, when British parliamentary investigators shed light on the company’s indifference toward fire safety while investigating the role its insulation materials played in the 2017 Grenfell Tower fire, the deadliest residential fire in Britain since the end of World War II. As public scrutiny over Kingspan’s role in the Grenfell Tower fire intensified in the UK, in the months leading up to the bombshell revelations Kingspan launched a new long-term strategy: a sustainability campaign called “Planet Passionate.”

Now critics say Kingspan could be replicating its worrisome conduct in the US green building materials market.

Employees at Kingspan’s plants in California have raised concerns about the firm’s environmental practices, dubious green certifications, unsafe working conditions, and alleged union-busting tactics.

Federal environmental regulators say there is nothing they can do to verify Kingspan’s “green” claims, deferring questions about potentially misleading marketing to another government agency. The current US environmental certification system for manufactured goods is based on private third-party audits and self-regulation — just like the British building materials fire safety certificate system in the lead-up to the Grenfell fire.

If Kingspan’s plan to expand its business in the United States succeeds, the company will have effectively used the green building boom to pivot away from fallout it suffered from its role in one of the deadliest building accidents in the twenty-first century.

“The US offers the chance of big growth to Kingspan,” The Irish Times said in September, reporting on the proposed Carlisle merger, noting the “attraction of access to green subsidies from the Biden administration’s Inflation Reduction Act, which offers companies state aid in a way that is next to impossible in Europe.”

The authors also note, “Kingspan’s interest in a big deal also shows that the company’s ambitions have not been shrunk by the ongoing fallout from the Grenfell Tower inquiry.”

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“All Lies, Mate”

In October 2008, Philip Heath, technical manager for Kingspan, let loose. In the second half of the twentieth century, Kingspan had transformed from a local contractor to a construction product multinational by snapping up businesses in eastern and central Europe after the collapse of the Soviet Union. Now, as the subprime mortgage collapse menaced the construction industry’s long-term growth, Heath briefly focused on another threat to Kingspan: a prominent contracting company had raised concerns about the integrity of the fire safety certificates for one of its signature insulation products, Kooltherm K15.

“[They] are getting me confused with someone who gives a dam [sic],” Health told a friend by email. “I’m trying to think of a way out of this one, imagine a fire running up this tower.”

Almost nine years later, in June 2017, flames ran up Grenfell Tower, a twenty-four-story public housing development in West London. After an electric fire broke out on the fourth floor, insulation materials in scaffolding around the building at the time acted like kindling, engulfing the tower in flames. Kooltherm K15 was part of that insulation system.

In total, seventy-two people were killed, and seventy others were treated for physical injuries. Countless others were traumatized. At least two people who helped victims and survivors have committed suicide.

The email from Heath was part of reporting and testimony by Kingspan executives and employees released by UK parliament in December 2020. The inquiry, which has yet to issue its final report, revealed that Kingspan’s insulation product appeared to be a known fire hazard and that its safety ratings were based on misrepresentations by the company.

According to investigators, Kingspan kept secret the fact that K15 failed several fire safety tests in 2007 and 2008 that were conducted after the company changed the insulation’s composite materials.

In March 2009, a private sector fire safety certification program raised questions about the wording in one of the K15 safety certificates. In response, Heath instructed subordinates to “let the file gather dust.” Two months later, when British building authorities approved K15 based on the certification in question, Heath told a colleague, “We can be very convincing when we need to be, we threw every bit of fire test data we could at him, we probably blocked his server.”

The company maintained K15’s inaccurate safety certification for years, withdrawing it just before executives were scheduled to give testimony to parliamentary investigators in November 2020.

In a 2008 WhatsApp chat uncovered by parliamentary investigators, a Kingspan technical expert declared K15’s fire safety bona fides were, “All lies mate . . . Alls we do is lie in here.”

The revelations made Kingspan synonymous with corporate malfeasance in the UK, Ireland, and throughout Europe. The company’s stock price dropped 23 percent on the Dublin-based Euronext stock exchange between December 2020 and February 2021, as asset managers rushed to rid themselves of exposure to the company. And by that December, Kingspan lost a high-profile global sponsorship with Mercedes’s Formula One racing team, after Grenfell survivors and Britain’s housing secretary urged the team to drop the deal.

In response to a series of questions from us, Pat Walsh, CEO of a Dublin-based PR firm, the Murray Group, responded on behalf of Kingspan. Walsh pointed to recent public statements made by the company denying responsibility for the fire.

But few in the United States are aware of the company’s reputation, let alone its existence. That could soon change, thanks to Biden’s climate agenda and Kingspan’s international ambitions, which have been spearheaded, in part, by Heath himself. Heath was involved with Kingspan’s 2018 bid to find “business opportunities” in the United States not long after the Grenfell disaster, according to his parliamentary testimony in December 2020.

When asked if Philip Heath and other executives associated with the Grenfell fire scandal were still with the company, Walsh noted, “On individual staff or former staff, as you will appreciate, that is not something any organization can comment on.”

Two years after Heath helped the company sharpen its focus on the US market, Kingspan launched its Planet Passionate endeavor, a sustainability program aimed at reducing the company’s carbon emissions by 2030.

According to Walsh, Kingspan was motivated by the fact that “buildings are responsible for 39 percent of global carbon emissions.” But market opportunity also likely had something to do with it.

The price of carbon credits, which allow companies to fund emissions reduction efforts if they pollute more than allowed by law, more than doubled in the European Union between 2017 and 2020, in anticipation of cap-and-trade reforms sparked by the Paris Climate Accord of 2015. The development boded well for the value of environmental efforts like Planet Passionate.

The global payoff of green capitalism has only become more lucrative since then, on the heels of President Biden’s election and multilateral efforts to build on the Paris agreement.

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“This Raises New Questions”

On September 28, Kingspan sponsored a Greenbuild Expo panel featuring EPA regulators on how the US government is leading efforts to lower the carbon footprint of building projects. That same day, the EPA made a big announcement: the agency would be giving $100 million in grants for construction product manufacturers, including funds to help companies develop standardized reports detailing their products’ environmental impacts called Environmental Product Declarations (EPDs) — voluntary certifications that are proudly touted by Kingspan.

According to the company, the production process for its flagship insulation products boast EPDs certified by the third-party environmental auditing company SCS Global Services as “part of our mounting effort for transparency and sustainability throughout the manufacturing process and supply chain.”

But Meredith Schafer, a researcher with the International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART), a union working with Kingspan workers to organize the company’s US and Canadian factories, says SCS Global didn’t independently verify the manufacturing data Kingspan provided to the certifier, and therefore overlooked labor- and waste-intensive elements of the production process, which were omitted from its environmental certifications.

“We are concerned to learn from SCS Global that they do not conduct site visits or audits to verify the accuracy of the data provided by Kingspan for Environmental Product Declarations,” said Schafer.

SMART organizers also point out that the foam core of Kingspan’s flagship insulation product contains a substance called isocyanate, which belongs to a family of chemicals the EPA has declared to be “known dermal and inhalation sensitizers in the workplace and have been documented to cause asthma, lung damage, and in severe cases, fatal reactions.”

They also cite another environmental certificate, issued by the nonprofit Cradle to Cradle Products Innovation Institute, that found substances in these products were “highly problematic; targeted for phase-out,” “moderately problematic, but acceptable for use,” or “unassessed.”

On September 6, workers at Kingspan’s plant in Modesto, California, filed a complaint with the California Division of Occupational Safety and Health (Cal/OSHA) alleging the company was failing to adequately protect its staff from harmful airborne particulate matter at the facility as a byproduct of the manufacturing process. In the complaint, workers say foam dust is so pervasive that they can see it in tissues after blowing their nose, and that the particles must be swept up and disposed of in “large garbage bins at least once a day.”

“It leaves a cloud in the air. You can see the particles,” said Rafael Cabrera, a worker at the Modesto plant, describing the effect of three foam-cutting machines in the shop running simultaneously.

A similar air-quality complaint was filed by workers at a Kingspan plant in Santa Ana, California, in October 2021. In response, regulators ruled last year that the company committed twenty-two violations, including five serious infringements, and fined it $21,785.

SMART and national environmental organizations have also raised concerns about the Santa Ana facility discharging runoff into an “impaired watershed” in an area that includes residential housing mostly for people of color. They accused Kingspan of “misrepresenting” environmental cleanup efforts by plant managers.

None of these concerns are reflected in Kingspan’s environmental certifications.

“Given the history of mismarketing the fire testing of K15 in the UK from 2006 until 2020, this raises new questions about the green marketing of its current star panel product,” said SMART researcher Meaghan LaSala.

SMART representatives told us that when they relayed their concerns to sales executives at SCS Global, they were told to present the information to Kingspan.

When asked for comment on worker and environmental concerns, SCS Global said in an email to us that the company “acted as the verifier for this [EPD],” and that it was not required to perform a site audit “[a]s the verifier.”

“We cannot comment on the data collection that was used to create the [life cycle assessment] models or EPD content statements,” said SCS Global’s vice president of corporate marketing, Karen Righthand. She noted that SCS was only responsible for “verifying type of data, data sources, assumptions, plausibility of results,” and compliance with industry standards, and that other auditing duties were performed by another company called WAP Sustainability.

WAP Sustainability, an environmental consulting company based in Chattanooga, Tennessee, did not respond to a request for comment.

“If SMART feels the data, or the content of the EPD are misrepresented they should approach both the [life cycle assessment] practitioners and Kingspan directly,” added Righthand.

Righthand also said that SMART had not filed its complaint through the SCS Global website feedback channel, and that the company’s “EPD program is only just now being made aware of these allegations through an email to management team members listed on our website.”

In response, Schafer said that SMART representatives had “clearly” and “repeatedly” asked SCS Global executives “for the protocol for raising issues with an EPD.”

SMART organizers say their concerns highlight potential problems with the EPD certification process that federal regulators are now working to expand.

“[EPDs] rely on self-disclosed data from manufacturers, and the third-party ‘verifiers’ do not typically audit this data or conduct site visits.” said LaSala. “I spoke to many people at Greenbuild about the fact that there are not enough stopgaps in the industry to prevent manufacturers from greenwashing to gain access to lucrative green markets.”

When asked how the EPA will ensure the integrity of certification programs developed by its grants, agency spokesperson Jeffrey Landis told us in an email that the Federal Trade Commission is responsible for cases involving private companies making “misleading environmental claims.”

Landis also said that the agency’s grants will “support projects that improve the standardization and integrity of EPDs and help manufacturers and others in producing robust EPDs that are integrated throughout the construction design and procurement process.”

Landis noted that Kingspan sponsoring the building projects panel at Greenbuild “had no bearing on the EPD grant announcement or grant decision.” He also noted that: “EPA has not endorsed any EPDs, including Kingspan’s EPDs.”

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“Kingspan Fully Respects the Right of Its Employees”

Outside the convention center where the Greenbuild Expo was taking place, SMART organizers handed out leaflets to attendees about the discrepancies between Kingspan’s “green” claims and workers’ accounts of safety and environmental conditions. The leaflets alleged that Kingspan was making bogus assertions about its Modesto facility separating metal and foam scraps from its general waste to reduce the amount of trash going to landfills.

Nearby, we observed a Greenbuild attendee pausing to monitor the activity. Around her neck hung a conference lanyard noting her name and affiliation: Siobhan O’Dwyer, Kingspan’s head of global marketing.

SMART has made several attempts, unsuccessfully, to unionize Kingspan’s US facilities since the 1990s. Workers at the company’s Santa Ana industry rekindled interest in the campaign in 2021, motivated by concerns about COVID-19 and indoor air quality.

Not long after, workers at the Modesto plant launched efforts to unionize with SMART. Cabrera, a worker at the facility, said safety issues were among the primary factors that motivated him to become a union advocate.

He pointed to one incident where he was asked to work with an industrial glue without being forewarned that it was activated by water. Cabrera said he rubbed his forehead after working with the product, and it stuck to him after coming into contact with his sweat. He was subsequently given stinging paint thinner to remove the adhesive. The incident is cited in the Cal/OSHA complaint filed by Modesto workers last month.

However their Cal/OSHA complaint is resolved, workers at the Modesto facility say they have already seen an improvement in working conditions, as management scrambles to respond to union activity.

“It wasn’t until the organizing happened that we got ear protection,” said Cabrera. The plant manager instructed maintenance workers to erect additional safeguards around heavy machinery, Cabrera added. “We also started getting safety goggles for certain work machines.”

When asked about management’s response to the union drive, Kingspan’s PR manager Pat Walsh said, “Kingspan fully respects the right of its employees to decide in an election if they want to be represented by a union or not.”

But organizers say the company has resisted the prospect of collective bargaining, despite the fact that working to address staff claims about environmental hazards might lend credibility to Kingspan’s “Planet Passionate” campaign. Cabrera said managers have held captive audience meetings — in which workers are forced to watch anti-union presentations or be disciplined — to bash SMART.

According to Schafer, one worker who was part of a delegation that presented the OSHA complaint to the Modesto plant manager was also terminated for an alleged timekeeping related offense, but the company hasn’t put the reason for the firing in writing. SMART accused Kingspan of firing the worker in retaliation for protected activity. A supplemental Cal/OSHA filing shared with us notes the fired worker suffers from “chronic symptoms” of exposure to chemicals used at the plant, and has had issues with coughing, headaches, and respiratory irritation.

In November 2021, Kingspan threatened to sue SMART for publishing a critical report on Kingspan’s corporate culture — based on public excerpts from the UK parliament’s Grenfell tower inquiry.

Labor organizers say they will continue to publicize Kingspan’s troubling activities, both in the UK and the United States, since they say such behavior doesn’t just threaten the well-being of workers — it could also undermine the green building industry in general.

“Unfortunately, while Kingspan is one of the most prominent firms touting its green credentials, its production workers at two of its factories allege unhealthy and unsafe working conditions,” said LaSala. “This could potentially harm the credibility of EPDs and other efforts at transparency.”

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You can subscribe to David Sirota’s investigative journalism project, the Lever, here.

This post was originally published on Jacobin.

To find low-wage workers for their agricultural investments, billionaires like Bill Gates are using an immigration program linked to labor abuses and human trafficking. The scam is a far cry from the program’s supposed aim: helping struggling family farmers.

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Billionaires who have been buying up farmland across the country are using a controversial immigration program linked to labor abuses and human trafficking to find low-wage workers for their agricultural investments.

The visa program, which is allowing a growing number of employers to pay rock-bottom wages, has been at the heart of recent modern slavery cases — and one in three workers in the program say the arrangement has limited their ability to leave their jobs.

While the industry claims the immigration program is necessary to help family farms find seasonal workers, companies affiliated with billionaires like Bill Gates, Rupert Murdoch, Stan Kroenke, Philip Anschutz, and John Malone have used the H-2A visa program to staff their expanding agricultural holdings throughout the United States, according to records reviewed by the Lever.

Records also reveal that one of the world’s largest financial firms, Toronto-based Manulife, owns farm properties in Washington state that hosted H-2A workers. Manulife is among several major financial firms that have gained control of hundreds of thousands of acres of US farmland since the 1980s.

The billionaires’ farms and Manulife properties have only sponsored a few dozen workers at most each year via the H-2A program. But their use of the program demonstrates how some of the wealthiest people in the world are using the employer-sponsored visa system to exploit some of the poorest while putting downward pressure on wages — all in the name of helping struggling family farmers.

The relatively small number of workers involved also understates the size of the billionaires’ and financial firms’ sprawling land portfolios, which rival the area of smaller US states in terms of acreage.

Furthermore, some of these billionaire tycoons are connected to efforts to expand the exploitative visa program.

Anschutz and Malone, both of whom are based in Colorado and own significant media assets, support right-wing think tanks, including the American Enterprise Institute and the Cato Institute, which have published reports urging the US Department of Labor to relax H-2A program rules for growers. The Cato Institute, where Malone serves as a director emeritus, supports controversial H-2A reform legislation that would expand the scope of the program while freezing wages and implementing immigration checks on farmworkers.

While there has been reporting on former president Donald Trump’s use of H-2A labor at his vineyard in Charlottesville, Virginia, none of these other billionaires or Manulife have ever been publicly associated with the controversial immigration program. In most cases, profit made from H-2A labor flows upward through opaque corporate networks and investment vehicles.

Manulife, Cato, American Enterprise, and entities controlled by each of the billionaires did not respond to the Lever’s requests for comment.

“Any talk of using H-2A labor is a bad thing,” said Edgar Franks, political director for the Washington-based farmworker union Familias Unidas por La Justicia. “It gives way too much power to the employer. . . . We’ve been involved in a lot of strikes where H-2A workers have been involved. We’re really familiar with the ins and outs of the program and how exploitative it is.”

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“They’re Completely Reliant on Their Employer”

The H-2A visa program, established in 1986, allows US farm owners to sponsor temporary visas for foreign workers to do seasonal work. The initiative effectively succeeded the Bracero Program, a Mexican guest worker program, which lasted from 1942 to 1964, and is often cited by historians as an example of the US government encouraging systemic racial discrimination and poor working conditions.

Under the H-2A program, growers must demonstrate to the Labor Department that they “anticipate a shortage of domestic workers” after unsuccessfully attempting to hire through state governments’ workforce agencies. The growers then get certified by immigration authorities to sponsor H-2A visas. Guest workers, often recruited by contractors, apply for matching visas at US embassies and border crossings.

About 90 percent of all H-2A workers come from Mexico. Many live in rural poverty, and many are indigenous: in a 2019 survey conducted by the migrant worker advocacy group Centro de los Derechos del Migrante, 19 percent of  Mexican H-2A workers reported speaking a first language other than Spanish.

Growers’ participation in the program increased exponentially in the past two decades, as the political climate in the wake of 9/11 led to crackdowns on employers’ use of undocumented immigrants, many of whom work in US agriculture. The number of H-2A jobs certified by the Labor Department increased sixfold between 2005 and 2021, from about 50,000 to 317,000. Eighty percent of those certifications typically lead to job applicants getting visas. As of 2020, about one in ten US farmworkers are part of the H-2A program.

While advocates say the program is crucial for small farmers facing staffing troubles, critics say it has enabled a powerful industry to suppress wages. Workers participating in the H-2A visa program are paid 55 percent of the average wage received by other nonsupervisory workers in the United States, according to an analysis published by the Economic Policy Institute.

One major challenge for H-2A workers is that their residency status is tied to a single employer. Bosses thus wield staggering power, worker advocates say, creating a culture of fear and silence.

H-2A workers “often live in squalid conditions, in rural areas without access to services,” said Jim Knoepp, senior attorney for the Southern Poverty Law Center’s Immigrant Justice Project, which represents migrant workers in labor law litigation. “They’re completely reliant on their employer for everything: getting to the store, cashing their paychecks, daily living expenses. It’s not a great system for most of them.”

The H-2A program has been associated with workers’ rights violations, including numerous cases of wage theft. Many H-2A workers face threats of deportation or recruitment blacklists for lodging complaints about their housing conditions or for engaging in workplace activism.

H-2A workers are also often forced to assume substantial debt to get to the jobsite, even though US law bans recruitment fees. The 2019 Centro de los Derechos del Migrante survey found that 62 percent of all H-2A workers took out loans to partake in the program, while 73 percent weren’t fully reimbursed for their travel costs.

Employers have even been known to take custody of their workers’ passports for the duration of the job.

“H-2A workers are more vulnerable than undocumented workers in a lot of ways,” said United Farm Workers communications director Antonio De Loera-Brust. He explained that undocumented workers have more freedom to switch employers and aren’t totally reliant on their bosses for housing and food.

A 2020 survey released in 2020 by Centro de los Derechos del Migrante, found that 32 percent of H-2A workers “did not feel free to quit,” while 34 percent “experienced restrictions on their mobility.”

What’s more, according to research on North Carolina–based farm labor funded by the US Department of Justice, as many as 18 percent of H-2A workers face human trafficking–like conditions, defined as the “restriction of physical or communicative freedom,” or experiencing “intimidation, threats, and fear” on the job. The report described the estimate as “conservative,” noting that the definition of human trafficking didn’t include workers hired under false pretenses.

“They aren’t bringing in H-2A workers because there’s a lack of workers here,” said Rosalinda Guillen, lead organizer of the farmworker association Community to Community Development. “They want to treat people in such an undignified manner. The abuse in the agricultural industry is horrific.”

The H-2A visa program has also played a key role in several recently exposed human trafficking rings. From 2015 to 2017, a Florida-based farm labor contractor called Los Villatoros Harvesting established a brutal forced-labor system using H-2A workers to staff farms supplying watermelons to supermarkets including Walmart and Kroger, according to the Labor Department and federal prosecutors.

And in November 2021, federal prosecutors in Georgia unsealed an indictment bringing charges against two dozen alleged coconspirators for “using the H-2A work visa program” to trap “Mexican and Central American workers into brutal conditions on South Georgia farms,” in a scheme that allegedly netted its coconspirators $200 million.

“The workers were held in cramped, unsanitary quarters and fenced work camps with little or no food, limited plumbing and without safe water,” noted the Justice Department. “The conspirators are accused of raping, kidnapping, and threatening or attempting to kill some of the workers or their families, and in many cases sold or traded the workers to other conspirators.”

According to the Justice Department, at least two people died “as a result of workplace conditions.”

“In its current form, the H-2A program exposes farm workers to serious and systemic exploitation that enables farm labor contractors to ensnare workers in debt bondage and forced labor through illegal recruitment fees and fraudulent promises about wages and working conditions,” a representative for the Coalition of Immokalee Workers, a Florida-based farmworker advocacy group, explained in an email.

In most states, farmworkers have few protections, if any, when bosses retaliate against them for pushing for better working conditions.

The agriculture industry was exempted from key federal labor laws passed in the 1930s, including the National Labor Relations Act, leading to low unionization rates. In 2023, just 4 percent of farmworkers were unionized, compared to 6 percent of workers in all private industries.

Laws protect farmworkers’ organizing activities in only three states: California, Hawaii, and New York. Protections in New York passed in 2019 have already led to an uptick in organizing by United Farm Workers, including one prospective bargaining unit that contains H-2A workers. In Washington state, there has also been a recent push by farmworkers, angered by working conditions during the pandemic, to win collective bargaining agreements.

Today, there are high rates of H-2A workers in Florida, Georgia, North Carolina, Louisiana, and Texas, all so-called “right to work” states, which means they feature some of the most anti-labor regulatory regimes in the country aimed at undermining workplace organizing.

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Purely Business

Industry lobbyists defend the H-2A program as an affordability issue, claiming family farms need the tools to address labor supply shortages. In April, Zippy Duvall, owner of a farm that raises 1.5 million chickens annually and president of the country’s most prominent agriculture trade association, the American Farm Bureau Federation, excoriated the Biden administration for proposing increased pay for some H-2A workers.

“These new wage increases only make it harder for farmers to remain competitive,” said Duvall, who was paid more than $600,000 for his farm-bureau work in 2021. “On my family farm, some of my employees have been with me for decades and they are like family.”

But his claims are undermined by records revealing that some of the richest people in the world are harvesting the proverbial fruit of H-2A labor.

“It’s very enraging to hear that the tracts of land where these folks are employed are owned by these billionaires, because the narrative around H-2A is that it’s justified because it supports struggling farms,” said Fabiola Ortiz Valdez, lead organizer with the Food Chain Workers Alliance, a federation of labor unions and other worker-led food industry organizations.

In recent years, billionaires’ growing farmland portfolios have stoked broad concerns about widening inequality. And agricultural properties are becoming increasingly attractive to powerful investors, with climate change set to upend agricultural markets over the coming decades, threatening the worldwide supply of arable land. Farmland investments outperformed the S&P 500 as a long-term investment in the twenty-five years leading up to 2021, according to one financial industry analysis.

Microsoft cofounder Bill Gates’s land ownership, in particular, has drawn attention because of his staggering wealth and influence (he is currently worth $111.4 billion, according to Forbes). Critics say that Gates’s farmland investment strategy bleakens the prospects of an entire generation of younger farmers, while simultaneously undermining his own stated philanthropic aims on climate change.

That strategy has apparently involved using H-2A visas to staff Gates’s farm property in Louisiana, using two holding companies: Oak River Farms and Angelina Ag.

Oak River Farms applied to sponsor H-2A visas for seven workers this year on Gates’s Louisiana land and has been certified to sponsor H-2A visas every year dating back to 2020, according to Labor Department records, when it received approval to hire twenty-nine migrant guest workers at $11.83 per hour.

Angelina Ag, meanwhile, received permission in 2018 to sponsor visas for twenty-two guest workers at an hourly wage of $10.73. In 2019, the company was certified to sponsor H-2A visas for twenty-five guest workers making $11.33 per hour.

Gates has defended his farm purchases, saying that they improve farm output, that he owns “less than 1/4000th of the farmland in the U.S.,” and that “these decisions are made by a professional investment team.”

Fox Corporation chair Rupert Murdoch, who has a net worth of $8 billion, used the H-2A program at Beaverhead Creek Ranch, a 360,000-acre land tract cutting across scenic mountain tops and expansive valleys that makes up 1 percent of Montana. He purchased the land in December 2021 from another company with deep ties to the Republican Party, Koch Industries.

When it last owned Beaverhead Creek, in 2021, the Koch family was certified to employ one H-2A guest worker at $13.62 per hour. It made similar requests every year dating back to 2018, when Beaverhead sought to hire a guest worker for $11.75 per hour.

Managers at Matador Ranch and Cattle, the parent company managing Beaverhead under Murdoch’s ownership, applied to hire four H-2A workers for $15.68 per hour this year and $14.68 per hour last year, according to Labor Department filings.

Real estate investor and prolific sports team owner Stan Kroenke, who is married to an heir to the Walmart fortune and is worth an estimated $12.9 billion, has similarly relied on H-2A workers at W. T. Waggoner Ranch — a 535,000-acre Texas property he bought in 2016, evicting two hundred longtime tenants who lived in cabins on the land.

In 2018, W. T. Waggoner was approved to hire two guest workers for $11.87 per hour minus deductions. Subsequent annual certifications increased the number of seasonal guest workers that W. T. Waggoner could hire. By 2023, Kroenke’s ranch had approval to hire twenty-seven H-2A workers for $14.87 per hour minus deductions, an amount that pales in comparison to the $131 million that Kroenke paid this summer for the rights to a single defensive midfielder, Declan Rice, to play on his prominent English Premier League club, Arsenal FC.

Kroenke additionally owns the 2023 NBA champion Denver Nuggets, the 2022 NHL Stanley Cup champion Colorado Avalanche, and the 2022 NFL champion Los Angeles Rams.

Philip Anschutz, a billionaire and prominent Republican donor who inherited an oil and gas company from his father, owns Overland Trail Cattle Company in Wyoming, which received permission to sponsor four guest workers this year at $15.68 per hour minus deductions. The company has filed similar requests for certification every year going back to 2018, when it sought to hire workers for $11.66 per hour.

Anschutz’s family foundation has donated more than $1.4 million to the American Enterprise Institute, which has criticized the H-2A program’s regulatory burden, arguing that “many growers cannot readily comply with its myriad requirements.”

Billionaire John Malone, who amassed a net worth of $9.2 billion in mass media ventures, which include control of SiriusXM and significant influence at CNN, is the country’s largest private landowner with some 2.2 million acres in his portfolio, an area almost as large as Delaware and Rhode Island combined.

“People say to me, ‘Why don’t you own a bunch of gold because of how you feel about the government?’” Malone said in a 2012 interview with Forbes, referencing his libertarian ideology. “But I have a really hard time owning assets that aren’t productive.”

This year, two of Malone’s ranch properties received permission to host six foreign guest workers at an hourly wage of $15.68 in Wyoming and $17.33 in Nebraska, minus deductions. Malone’s Nebraska operation was also certified to sponsor three H-2A workers in 2022, and his Wyoming ranch has been certified to sponsor H-2A visas annually going back to 2019.

In response to such findings, Knoepp at the Southern Poverty Law Center likened the H-2A program to a wage-fixing scheme that the rich can use to avoid relying on market forces to tackle their staffing challenges.

“Rather than competing for labor, you go to the government and ask for an artificial supply,” said Knoepp.

“Why do they support a program that restricts workers’ freedom to move around and work?” he asked rhetorically, noting that some of the billionaires flagged by the Lever “are big time libertarians.”

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“Just the Tip of the Iceberg”

The finance industry also profits from the system. Though the extent of the industry’s benefit is hidden behind murky networks of contractors and subsidiaries, ventures tied to at least one of the largest financial firms in the world, Manulife, received permission to sponsor up to ninety-six guest worker visas through the program this year and last for land it owns in Washington state.

Manulife manages more than 302,000 acres of farmland in the United States across eighteen states and is among several financial firms, including Prudential Financial, UBS, and TIAA, to have expanded its agricultural portfolio over the past few decades.

In 2020, the finance industry as a whole managed about $26 billion of farmland in 2020, after only gaining a toehold in agriculture in the 1980s.

Some experts say lawmakers are enabling the rich and powerful to abuse the H-2A visa program by failing to adequately fund regulators who enforce wage-theft laws. Daniel Costa, director of immigration law and policy research at the Economic Policy Institute crunched the numbers and found that the probability of a farm being investigated by the federal labor regulators is just 0.7 percent, despite 70 percent of such probes leading to enforcement actions.

“From the data, it’s clear a lot of people are getting their wages robbed every single year and that’s just the tip of the iceberg,” said Costa. “[Regulator] staffing levels are at near-record lows. They have to prioritize what cases they take. . . . If you’re a farmworker who gets a few hundred bucks stolen, who are you gonna complain to?”

The growing chasm between billionaire farm owners and workers has also complicated farm labor organizers’ efforts to win concessions from growers, such as workers compensation payouts.

“It’s hard to confront faceless transnational capital. Who are you even mad at?” said United Farm Workers’ De Loera-Brust. “In Cesar Chavez’s days, the grower would be ideologically dead-set against recognizing the union, but at least you could confront him on the picket line.”

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You can subscribe to David Sirota’s investigative journalism project, the Lever, here.

Republican representative Patrick McHenry is staunchly defending a bank deregulation law passed under Donald Trump just days before leading an inquiry into the collapse of Signature Bank — which is his top donor.

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The Republican lawmaker overseeing the House investigation into the ongoing banking crisis told an influential bank lobbying group last week that it was “hackish” to blame deregulation for recent bank failures — including the collapse of an institution that’s been his top individual source of campaign cash.

Rep. Patrick McHenry (R-NC), who has received $275,000 in donations since 2013 from executives at Signature Bank, will lead the House Financial Services Committee’s first hearing on Wednesday looking into the sudden failures of Signature Bank and Silicon Valley Bank (SVB) earlier this month.

One key factor in Signature Bank’s collapse was its decision to aggressively pursue cryptocurrency companies’ deposits before the crypto market imploded. McHenry, who benefited last election cycle from nearly $170,000 in spending by a pro-crypto super PAC, has been an avid supporter of the industry, which is built around digital money or assets.

The lawmaker has previously scolded financial regulators seeking to scrutinize crypto — which critics describe as inherently speculative and without real use — and he has embraced crypto lobbyists’ proposal to establish new special regulations for digital currencies, even though they can be overseen and reined in using existing regulatory authorities.

In advance of the House hearing this week, McHenry has made several public appearances urging lawmakers to wait to get the facts and avoid speculating about what caused the banks’ downfalls. But in a speech last week before the American Bankers Association, a powerful Washington banking lobby, McHenry ruled out one potential factor: the bipartisan 2018 deregulation law signed by President Donald Trump.

The 2018 law, which McHenry supported, pared back government oversight of so-called regional banks like Signature Bank and SVB.

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“We Need to Be a Little More Patient”

McHenry was one of a handful of lawmakers from both parties who addressed the American Bankers Association last week during its annual Washington summit. The bank lobbying group raised $141 million in 2021, according to its most recent tax return.

After a quick speech, McHenry was interviewed by the American Bankers Association’s CEO, Rob Nichols, who asked McHenry to respond to critics blaming the recent bank failures on the 2018 deregulation law, which the association backed.

“I think it’s unbecoming, I think it’s quite hackish,” said McHenry. “We need to be a little more patient and find out what the facts are,” he continued, adding that the 2018 law “did not touch at all the facts and circumstances for these two failed banks.”

The legislation reduced mandatory oversight of regional banks, firms holding between $50-250 billion in assets under management. Instead, the law allowed banking regulators, who have historically been differential to the banking industry, to use their discretion to apply enhanced rules on regional banks.

Both SVB and Signature Bank surpassed the $50 billion asset threshold in 2019, the year after Congress passed the deregulatory law. Both banks then continued expanding rapidly until earlier this month, when they were taken over by state and federal banking authorities. If Congress had never relaxed the rules, each bank would have been subject to more stringent regulations, stress tests, and capital requirements.

Nichols, who was paid nearly $5 million in 2021, said that he was in “heated agreement” with McHenry, whom he described as “the adult in the room.”

During an appearance on CBS News on March 19, McHenry similarly cautioned against pointing fingers over the collapse of SVB and Signature Bank, saying that “until I have the facts, I’m not going to draw a conclusion.”

However, he also gave a nod to conservative culture warriors’ insistence that SVB’s failure stemmed from the company’s interest in “environmental, social, and corporate governance,” suggesting that SVB’s and Signature Banks’ executives may have been “more concerned about politics, or the environmental or social goods” than with “proper oversight of people’s deposits.”

Ironically, no other lawmaker has financially benefited more in recent years from Signature Bank executives’ interest in politics.

McHenry has been the top House recipient of campaign donations from Signature Bank executives in every election cycle since 2014, according to data from OpenSecrets. The bank’s employees have been McHenry’s top individual source of campaign cash over the course of his career.

Last week, McHenry attempted to distance himself from Signature Bank, after Bloomberg News reported that the bank’s executives hosted a fundraiser for him just ten days before the firm went bust.

McHenry told reporters that he returned the donations, adding: “When people contribute to me, it’s an endorsement of my agenda — not the other way around.”

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“Regulators Were Trying to Send a Message”

Signature’s rapid growth, its accumulation of uninsured deposits worth more than the $250,000 guaranteed by the federal government, and its decision to court major clients in the highly volatile crypto industry should have prompted regulators to take a closer look at the bank, analysts bemoaned after the collapse.

Before the crypto bubble burst, there was as much as $3 trillion worth of investor money in the cryptocurrency industry.

Despite the vast amount of money behind the industry, boosters have never been able to demonstrate a clear use-case for crypto, other than as a means of facilitating crime, scams, money laundering, or regulatory arbitrage, the pursuit of legal loopholes to evade government oversight.

These problems are exemplified by Signature Bank’s crypto clientele, which played a major role in its recent collapse. The bank’s partners included the crypto exchange FTX and the crypto lender Celsius, both of which went bankrupt last year amid allegations of large scale embezzlement.

Another Signature Bank client, the crypto exchange Binance, has reportedly been helping clients launder money and evade taxes for years. On Monday, the Commodity Futures Trading Commission (CFTC) accused Binance of operating unregistered derivatives exchanges, which enabled the company to disregard rules “designed to prevent and detect money laundering and terrorism financing.”

Former representative Barney Frank (D-MA), who served on Signature Bank’s board of directors, has publicly speculated that “regulators were trying to send a message about crypto” when they took over the bank, though he failed to articulate why that might be inappropriate.

When the government facilitated the sale of Signature Bank’s deposits and loans to Flagstar Bank on March 19, the transaction notably did not include the bank’s crypto-related deposits.

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Crypto’s “Great Promise”

Despite the controversy around crypto, the industry has won staunch defenders in Congress — including McHenry, who became the House financial services chair in January.

McHenry has been among lawmakers who have, since 2021, pushed back against top officials at the Securities and Exchange Commission (SEC) who were interested in charging crypto firms like Binance with operating unregistered securities exchanges.

Regulators at the SEC, including its chair, Gary Gensler, have said that most cryptocurrencies are securities and, therefore, come under their jurisdiction. McHenry has pushed for the CFTC to have regulatory power over cryptocurrencies, rather than the SEC, which is known as a much tougher regulator.

Such a move — long sought by lobbyists — would give the public the impression that crypto companies are subject to comprehensive oversight when, in reality, they would be under the authority of a relatively weak regulator of their own choosing.

In August 2021, for example, McHenry lashed out at Gensler for asserting SEC authority over crypto exchanges, accusing the agency head of “a blatant power grab that will hurt American innovation.” McHenry has also introduced legislation that would exempt cryptocurrency token issuers from SEC disclosure requirements.

The Republican has additionally pushed back on other regulators who have expressed an interest in subjecting banks involved in cryptocurrencies to higher levels of scrutiny.

In November 2021, as the crypto market was near the height of its frenzy, McHenry criticized a top bank regulator, acting head of the Office of the Comptroller of the Currency (OCC) Michael Hsu, for arguing that banks with partners in crypto and other forms of financial technology, or fintech, required more government oversight.

“The nascent fintech industry and the development of digital assets offer great promise to strengthen the US financial system and improve access to credit and investment for all American consumers and small businesses,” the lawmaker wrote in a letter.

McHenry again cautioned Hsu in October 2022, when the acting OCC head said that fintech firms who partnered with banks should face “enhanced engagement” and a shift away from a “lighter supervisory approach.”

As it happens, Signature grew unsustainably in part by relying on a fintech platform, made by a company called Tassat Group Inc., that enabled the bank’s corporate clients to trade cryptocurrency at any time of day.

The system, called Signet, helped Signature Bank enjoy an “enormous growth in deposits,” as Tassat CEO Kevin Greene boasted in February 2022, before the crypto market downturn. Two other banks that have used TassatPay to facilitate crypto transactions, including Customers Bancorp and Western Alliance, have also experienced distress after the collapse of Signature Bank and SVB.

A class action lawsuit filed last month against Signature Bank argues that the platform gave the bank “actual knowledge” of the now-infamous FTX fraud and “substantially facilitated” embezzlement by company executives.

Brought by Statistica Capital, a crypto trading firm and former Signature Bank client that used Signet to deposit funds with FTX, the suit alleges that “by virtue of operating Signet, Signature directly observed the improper commingling and misappropriation of customer funds.”

Now, the shape of the congressional inquiry into Signature Bank — and its crypto dealings — will depend in large part on McHenry, who has received substantial financial support from the bank’s executives and its former crypto interests.

In addition to being the top recipient of campaign cash from Signature Bank executives, McHenry also benefited from $167,000 in spending last year by a super PAC called Crypto Innovation — which was primarily funded by a separate crypto-focused political group bankrolled by FTX executives, including its alleged fraudster CEO Sam Bankman-Fried.

“That Chair McHenry was on the wrong side of the crypto debate is now even more clear with the failure of his Signature benefactor,” said Bartlett Naylor, financial policy advocate for the consumer watchdog organization Public Citizen.

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You can subscribe to David Sirota’s investigative journalism project, the Lever, here.

This post was originally published on Jacobin.

In the years leading up to Silicon Valley Bank’s recent collapse, federal regulators granted the bank a special exemption from a key rule put in place to prevent banks from engaging in risky investments.

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In the years before Silicon Valley Bank (SVB)’s sudden failure, federal regulators gave the firm a special exemption from rules designed to prevent deposit-taking banks from engaging in risky investments and financial speculation, according to records reviewed by the Lever.

The move — which was a precursor to regulators later extending a similar exemption to the entire banking industry — coincided with Silicon Valley Bank, or SVB, continuing to invest in the high-risk venture capital industry in the lead-up to its collapse, which is the second-largest bank failure in US history.

As the federal government now protects SVB’s depositors from losses, the bank’s demise has touched off alarms about broader risk in the financial industry, just a few years after both lawmakers and federal bank overseers began rolling back some of the reforms that followed the 2008 financial crisis.

In this particular example of that deregulation, the Federal Reserve created significant carve-outs to the so-called Volcker Rule, named after former Fed chairman Paul Volcker. That regulation was supposed to prevent federally insured banks from owning or investing in private equity or hedge funds — opaque pools of assets that are considered illiquid, meaning they cannot be easily sold and turned into cash.

In 2017, the Fed granted SVB a five-year reprieve from the Volcker Rule. The decision allowed SVB, a major lender to the tech industry, to remain a traditional deposit-taking bank while also maintaining its risky investments in venture capital — a form of private equity that funds startups in the tech industry, which has recently been battered by mass layoffs and financial losses.

A few years later, the Trump administration effectively granted this same exemption to the whole banking industry, allowing banks to sponsor and invest heavily in venture capital funds. As a result, SVB was able to continue investing in assets that the Fed deemed too risky for a federally insured bank in 2017.

Although SVB was an outlier in terms of its high exposure to venture capital funds, other banks that became distressed as turmoil spread this week are also known for investing in and working with venture capital (VC) funds, including First Republic, PacWest, Western Alliance, Customers Bancorp, Zions Bancorp, and Comerica.

Experts say the pool of venture capital investments that regulators permitted to remain on SVB’s balance sheet is worth examining when determining the causes of its collapse last week. Many of those assets were illiquid. Shortly before SVB failed, the bank was forced to sell off almost every one of its assets deemed “available for sale,” according to the Financial Times. That effort led to heavy losses and ultimately helped accelerate the run on the bank.

“We’ll never know if the bank would have collapsed had it followed the standard rules, like Volcker, and best practices,” said a former congressional aide who helped draft the legislation establishing the basis for the rule, who was unauthorized to speak publicly on the matter in his current role.

He noted, though, that SVB had substantial venture capital investments, and said that analyses of the bank’s collapse should consider whether it was appropriate for regulators to permit such activities.

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Enabling Banks to “Engage in High-Risk Activities”

SVB’s business was closely tied to the venture capital industry. The bank, founded in 1983, invested in venture capital and loaned tens of billions to VC firms to help them manage their cash flow. Venture capital-backed tech firms were also big depositors at SVB.

The bank’s growth prospects faced headwinds when Democrats passed their 2010 Dodd-Frank Wall Street reform law, in response to the 2008 financial crisis. That’s because the law included a long-delayed provision, called the Volcker Rule, which was supposed to prevent banks from putting their money into riskier private equity and hedge fund investments.

In 2012, SVB lobbied the Obama administration to exempt venture capital investments from the Volcker Rule. “Venture investments are not the type of high-risk, ‘casino-like’ activities Congress designed the Volcker Rule to eliminate,” the bank wrote in a letter to federal regulators.

However, the final Volcker Rule issued by the Obama administration, which went into effect in 2015, did not exclude venture capital. Officials explained that “Congress explicitly recognized and treated venture capital funds as a subset of private equity funds in various parts of the Dodd-Frank Act.”

Still, the Fed granted SVB their Volcker Rule exemption in 2017, with Federal Reserve officials justifying the decision by saying that the bank needed time to “conform its ownership interest” in “illiquid funds.” Agency officials enumerated which funds concerned them in the exemption letter, but the list was redacted. The Fed did not respond to a request for comment, but did announce Monday that it would be reviewing its supervision of Silicon Valley Bank.

Public records indicate that the list of illiquid investments referred to VC-linked funds. In its latest annual report, SVB discussed the expiration of its Volcker Rule exemption in July 2022, and said that it never needed to fully comply with the Fed’s request to reduce its exposure to illiquid assets because regulators eventually extended a Volcker Rule exemption for venture capital investments to the entire banking industry.

The industry-wide exemption, which went into effect in October 2020, was a major victory for SVB, after the bank spent years lobbying for the outcome.

When that venture capital carve-out was proposed in January 2020, Federal Reserve chair Jerome Powell said that banks offering “limited service” to venture capital did “not raise the types of concerns the Volcker rule was intended to address.”

SVB was a member of two lobbying groups, the American Bankers Association and Bank Policy Institute, that submitted regulatory comments backing the exemption.

One member of the Federal Board of Governors publicly questioned the proposed exemption.

“I am concerned that several of the proposed changes will weaken core protections in the Volcker Rule and enable banking firms again to engage in high-risk activities,” said Fed governor Lael Brainard, a Democrat who now serves as a top economic aide to President Joe Biden, in a dissenting vote on the carve-out. “The proposal opens the door for firms to invest without limit in venture capital funds and credit funds.”

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“A Piece of the Puzzle”

SVB’s balance sheet ballooned in the years after the Fed first granted the bank its Volcker Rule exemption in 2017, as deregulatory policymaking and low interest rates fueled the proliferation of tech start-ups.

One trade publication reported that 55 percent of the bank’s loan portfolio, which grew to $61 billion by late 2021, consisted of loans to VC and private equity firms, which in turn brought the bank “a surfeit of low-cost deposits” from start-ups “in the technology, health care, and life sciences industries.”

When the new industry-wide exemption went into effect in October 2020, SVB grew more emboldened to expand before running into headwinds in 2022, as deposits and asset valuations shrank as the Fed hiked interest rates. But the bank’s illiquid funds could stay on the books, managers noted, thanks to the Fed’s light-touch approach to venture capital assets.

“As a result of various subsequent amendments to the Volcker Rule,” SVB wrote last year, “we believe that substantially all of our Restricted Volcker Investments (i) qualify for new exclusions under the amended rules, (ii) otherwise are excluded from the definition of ‘covered fund’ or (iii) commenced or completed a liquidation or dissolution process prior to July 2022.”

The firm noted that these amendments included “the adoption of new exclusions from the definition of ‘covered fund’ for venture capital funds and credit funds.”

But all of these investments were inherently highly risky, because stakes in start-up companies can’t easily be sold, unlike shares in publicly traded companies.

In another excerpt from the report discussing the Volcker Rule, SVB explained that their VC investments are illiquid. The bank said that it makes “commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies” and that the money typically can’t be withdrawn for years.

“Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund,” the company said. “Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100 percent of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over 5 to 7 years.”

To make matters more volatile, Silicon Valley Bank’s loan portfolio was highly concentrated. The bank disclosed that “a significant portion of our loan portfolio is comprised of larger loans,” including “credit to our private equity and venture capital clients,” and that these lines of credit “could increase the impact on us of any single borrower default.”

“As of December 31, 2022, loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $46.8 billion, or 63 percent of our portfolio,” the annual report read.

Sure enough, SVB’s investment strategy began to falter in the second quarter of 2022. As the Fed hiked interest rates and VC activity ebbed, the bank’s cash flow reversed, leading to a steady stream of depositors fleeing the institution throughout the year.

The exodus eventually prompted the bank to sell off $21 billion in bonds at a loss, which led managers last Wednesday to seek private funding to stay solvent. A sharp increase in withdrawal requests followed on Thursday, causing a run on deposits. By Friday, SVB failed, and regulators took control of the firm.

The crash created a panic among Silicon Valley tech investors: the Federal Deposit Insurance Corporation only insures up to $250,000 in each customer’s deposits, and it turned out that more than 90 percent of SVB’s deposits were uninsured at the end of 2022.

Some of those depositors threw fits on social media over the weekend after regulators said that uninsured depositors would have to wait for SVB assets to be liquidated before they could start recovering their money. On Sunday, the Fed and other regulatory agencies announced extraordinary measures, guaranteeing those uninsured deposits independent of the outcome of the SVB fire sale.

But if it weren’t for the Fed itself granting SVB an exemption to the Volcker Rule, the trajectory of the bank might have looked very different, according to the former congressional aide who helped draft the Dodd-Frank financial reform law.

“We know Silicon Valley Bank was extraordinarily unique in that it grew very rapidly over the last several years, fueled in part by fickle corporate deposits from venture capital–related companies,” said the ex-staffer. “We also know that it invested those in very long-dated, very low-interest bearing debt securities that lost significant value when the Fed hiked rates. And we know that Silicon Valley Bank had a significant amount of private fund exposure courtesy of the Fed’s slow implementation of the Volcker Rule and its decision to grant the bank an exemption.”

The ex-staffer noted that he was personally lobbied by Silicon Valley Bank on a Volcker Rule exemption as the firm led industry efforts to shield venture capital from the effects of the regulation.

Another expert who spoke to the Lever agreed with the ex-staffer’s assertion that the exemption needed to be examined.

“Yes, that’s certainly a piece of the puzzle,” said Bartlett Naylor, financial policy advocate for the nonprofit consumer advocacy organization Public Citizen. Naylor noted that SVB had been lobbying to weaken the Volcker Rule since 2010, the year Congress passed the Dodd-Frank financial reforms. Other relevant factors, Naylor said, include the Dodd-Frank rollback passed by Congress in 2018, which subjected banks like SVB to less stringent oversight, and the Fed’s decision to weaken liquidity rules for banks with fewer than $700 billion assets. He noted that Silicon Valley Bank pushed for both of these outcomes.

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You can subscribe to David Sirota’s investigative journalism project, the Lever, here.

This post was originally published on Jacobin.