Legal Ethics and Reform

Regulatory Excess is All to Common -

Monitoring and Control System are Needed


American governments, at both the state level and Federal level, have a tendency to delegate rule making and administrative power to independent regulatory agencies. In some cases even judicial power is transferred to regulatory bodies.


These transfers of power have been undertaken because

1) Governments have expanded the scope of their activities so widely that no legislative body has the time to properly prepare and enact detail laws instructing regulators what rules they will enforce and

2) In this time of highly specialized training, even the well educated legislator today lacks the broad gauged, general knowledge base needed to easily grasp all the factors the various regulating agencies must consider.

Legislative bodies are not only law making bodies, but they also exercise oversight over the various departments of government. Through oversight, they hope to acquire useful knowledge that will inform future legislation. However, here again government has expanded to the point where oversight has become a "hit or miss" proposition. The vast majority of regulatory activity is never examined.


In addition to the foregoing, America is blessed, some might say cursed, with a two tiered government structured where some regulated activities are regulated at both the Federal and state levels. Examples of these dually regulated activities are securities, environmental, highway safety, support for the poor, etc.


Another problem area with regulators is their need to show results for their efforts. In short, they need to justify their existence. The easiest measure for this is "enforcement actions completed". There are of course two ways to get a successful enforcement action:

1) get the offending party to agree to some statement of offences and a sanction or,

2) should the offending party disagree with either the statement of facts or proposed sanction, get an offending party punished by a court, or other hearing tribunal, that agrees with the regulator's view of things.

Obviously from the regulator's point of view the former is more desirable than the latter. Fewer resources are consumed by the regulating agency, if agreement can be achieved quickly.


There are regulators who report to low level elected officials in some states who might be seeking higher office and there are those who are insulated from any oversight by elected officials.

- The former are likely to be caught up in schemes to further the political aims of the elected official. One such scheme is to fine offenders to raise money for television campaigns to educate citizens about various problems. Truly fine money is used for citizen education, but it is also used to help the official get reelected. For instance, the compliance or enforcement official in a state EPA organization might be told by his elected leader to raise fine money so that the elected official can make television spots advising citizens of common signs of industrial pollution. Various companies and individuals are fined for actual, or supposed, violations and the money goes for two purposes - the education of the citizens about pollution and the increase of the positive name ID of the low level elected official who is associated with the television ad campaign. Usually such regulatory proceedings, if objected to, can be appealed to a tribunal unconnected to the charging regulators dept. Many states offer Administrative Hearing Tribunals that handle all the actions coming out of regulatory actions. However, many respondents take the offered settlement sanctions rather than drag things to an uncertain fate at a hearing.

- the latter are less troubling in some regard but more troubling in other regards. Such regulators that are only "loosely connected" to accountable officials tend to bring nuance complaints of little merit asking for minor sanctions. The offer some sort of "Kangaroo" hearing process where the harassed target can go for redress, but these hearings are rigged with judges who depend upon repeat appointments to different hearing panels to support their families and so are unlikely to be truly objective. In these hearings witness lists and allowed evidence are constrained. The usual motions such as "motions to sever" where multiple unrelated parties are rolled into one action are summarily denied. The process is designed to get settlements with demands for nuance sanctions and a "rigged" hearing process.


There is also the problem of piling on. This occurs when one tier of the regulatory structure brings and action and a different tier gets wind of it and decides to bring their own version of the same action with slightly reworded facts and different sanctions. There can be many variations on this theme for instance if one regulator has charged four individuals the other regulator might charge the employing company and only one individual. If one regulator has suggested each charged person pay a $5,000 fine and accept a 30 day suspension. The second regulator might suggest a $250,000 fine for the company and a total, permanent bar for the single person charged. There are no meaningful sanction guidelines in any of this.

During this process of piling on the second regulator tends to become transfixed by the charges the first regulator has levied. Even if the charged person, or company, has answered the initial complaint, the points made in the answer are generally ignored. Sometimes the second regulator will move aggressively before the back and forth of the original regulator's settlement process has clarified the facts and finalized the sanctions there. So as the $5000 fine and 30 day suspension is perhaps being whittled down by clarifying evidence to only a 15 day suspension, the second regulator may be in there demanding a total ban and crushing fine.


Occasionally, all this happens as something big, like the sale of the affected business, is being negotiated. Of course, the buyer of a business is not overly concerned about the possibility of three individuals getting manageable fines and short suspensions, but when the second regulator demands $250,000 from the company, the buyer has to take notice and make demands for changes in the terms of sale, etc. Regulators are not stupid. They understand that if you catch a business at a time when a protracted appeal to a hearing tribunal is impossible a significant monetary demand might have to be met to finalize the sale. Once a settlement is reached with the second regulator - even total exoneration coming from the negotiations with the first regulator, will have no effect on the settlement arrived at with the second regulator.


The US Congress and each state legislature should make sure they have the following items in law to assure that regulatory excess is not happening:

1) Make sure all conversations between enforcement officials and the company or person they might be considering an enforcement action against are recorded. Further these recording should be reviewed completely (or at least spot checked) semi annually by an Inspector General or State Auditor for:

.. a) the absence of harassing language,

.. b) the presentment of exculpatory or clarifying information that bars on the prospective charges.

The IG's or Auditors report on each review should go to the appropriate oversight committee in the Congress or the state legislature.

2) Whenever a person or company settles with a regulatory body the IG or Auditor should call the party that settled and ask questions about the process and the result. Were you given information about a possible hearing? Were you subject to threats or excessive pressure to settle? Is the statement of facts fair and balanced? Could the statement be improved with clarifying information? Was the agreed on penalty fair, all things considered? Where their special factors that forced you to settle rather than go to a hearing? Was another regulatory body looking into these matters at the time you settled? Did the regulator you settled with do their own investigation or did they rely on some other regulator's investigations? Of course, the results gathered by this survey work should be reported to the proper legislative oversight committee.

3) Any fines collected from the regulatory process should go into the general fund of the state or Federal government. It is important that regulator's not gain immediate direct control over fine money they collect. Governmental activity needs to be funded by legislative appropriation. This is another way to assure proper legislative oversight.

4) No settlement should be allowed that contains any language which might hamper or discourage public discussion by the parties of:

.. a) the facts involved in the matter,

.. b) the sanction agreed to, and/or

.. c) the process used by parties to arrive at a settlement.

General language of prohibition, such as "no representation may be made which might directly or indirect call into question the accuracy of the facts mention herein or the fairness of the sanction imposed", must be outlawed. Good government depends on maximum transparency.




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