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#299 - The San Diego Report, 18-Aug-1992

The District Attorney of San Diego County, California, Edwin L. Miller,
Jr., has issued a 260-page background report on Waste Management, Inc.
(WMI), the nation's largest waste hauler. The San Diego Report, as it
has become known, draws the following conclusions, which we quote
verbatim:

** WASTE MANAGEMENT, INC.'S METHODS OF DOING BUSINESS AND HISTORY OF
CIVIL AND CRIMINAL VIOLATIONS HAS [sic] ESTABLISHED A PREDICTABLE
PATTERN WHICH HAS BEEN FAIRLY CONSISTENT OVER A SIGNIFICANT NUMBER OF
YEARS.

** WE [the San Diego DA and his investigative staff] HAVE REVIEWED
RECENT PRACTICES AND PROBLEMS AND OUR CONCERNS HAVE NOT DIMINISHED. THE
COMPANY'S RECENT BUSINESS PRACTICES AND VIOLATIONS DO NOT APPEAR TO BE
DIFFERENT FROM THE PAST.

**...[T]HE COMPANY'S HISTORY REQUIRES EXTREME CAUTION BY THE SAN DIEGO
COUNTY BOARD OF SUPERVISORS OR ANY OTHER GOVERNMENTAL ENTITY
CONTEMPLATING ANY CONTRACTUAL OR BUSINESS RELATIONSHIP WITH WASTE
MANAGEMENT

** ...[I]T IS CLEAR THAT WASTE MANAGEMENT ENGAGES IN PRACTICES DESIGNED
TO GAIN UNDUE INFLUENCE OVER GOVERNMENT OFFICIALS

** THESE PRACTICES SUGGEST AN UNSEEMLY EFFORT BY WASTE MANAGEMENT TO
MANIPULATE LOCAL GOVERNMENT FOR ITS OWN BUSINESS ENDS. IF UNCHECKED,
THESE PRACTICES, LIKE OTHER MORE DIRECT FORMS OF IMPROPER ATTEMPTS TO
GAIN INFLUENCE, MAY HAVE A CORRUPTING IMPACT ON LOCAL GOVERNMENT AND
LEAD TO DECISIONS UNSUITABLE TO THE BEST INTERESTS OF THE PUBLIC

Background of the San Diego Report

In late 1990, Waste Management, Inc. (WMI), requested a permit to
develop a large garbage dump in Gregory Canyon, San Diego County. The
request needed approval by the County Board of Supervisors, and the
Board asked the District Attorney, Edwin L. Miller, Jr., to conduct a
background check on WMI. The check took over a year and resulted in a
report, released in March, 1992, and updated in July, 1992, containing
the following chapters: Introduction; Company History; Environmental
Problems; Significant Environmental Cases; Organized Crime Connections;
Public Corruption; Anti-trust and Unfair Business Practices.

There have been several reports on Waste Management in recent years,
but until now none has openly discussed the company's alleged
connections to organized crime. In its section entitled, Organized
Crime Connections, the San Diego Report begins this way (we are quoting
verbatim):

HISTORICALLY, THE REFUSE INDUSTRY HAS BEEN REPUTED TO BE INFILTRATED BY
MEMBERS OF ORGANIZED CRIME. IN MANY INSTANCES, THIS IS A WELL-DESERVED
REPUTATION. THE WASTE CARTAGE BUSINESS IN CERTAIN AREAS OF THE COUNTRY,
PRIMARILY THE NORTHEASTERN SEABOARD, CONTINUES TO BE KNOWN AS AN
INDUSTRY WITH STRONG TIES TO TRADITIONAL ORGANIZED CRIME FAMILIES.
WHERE ORGANIZED CRIME IS INVOLVED IN THE HAULING INDUSTRY IT IS COMMON
TO FIND A "PROPERTY RIGHTS" SYSTEM AT WORK WHEREIN CUSTOMERS ARE
CONSIDERED THE "PROPERTY" OF THE HAULING COMPANY. THUS, THERE IS NO
COMPETITION AND THE COMPANIES ARE FREE TO SET HIGH SERVICE FEES WITHOUT
CONCERN THAT CUSTOMERS WILL BE LOST TO COMPETITORS. WHERE ORGANIZED
CRIMINALS ARE INVOLVED IN WASTE STORAGE OR LANDFILL OPERATIONS, FEE
SKIMMING AND MONEY LAUNDERING ARE COMMONLY APPLIED SCHEMES. IN MANY
INSTANCES, THE DISPOSAL COMPANIES ASSOCIATED WITH ORGANIZED CRIME HAVE
BEEN FAIRLY BLATANT IN THEIR DISREGARD FOR STATE AND FEDERAL
ENVIRONMENTAL REGULATIONS HOWEVER, SUCH UNLAWFUL BUSINESS PRACTICES
HAVE NOT BEEN LIMITED TO ORGANIZED CRIME OPERATED BUSINESSES

THE DEFINITION OF "ORGANIZED CRIME" IS GENERALLY ASSUMED TO BE MERELY
ANOTHER TERM FOR THE MAFIA, OR TRADITIONAL ORGANIZED CRIME FAMILIES.
HOWEVER, NOW THE TERM "ORGANIZED CRIME" MAY BE APPLIED TO MANY CRIMINAL
ENTERPRISES WITH DIVERGENT INTERESTS. ANY ENTERPRISE WHICH IS ORGANIZED
TO CIRCUMVENT THE LAW FOR PROFIT MAY PROPERLY BE DESCRIBED AS
"ORGANIZED CRIME."

IN EARLY 1960, DEAN BUNTROCK (ONE OF THE FOUNDING MEMBERS OF WASTE
MANAGEMENT, INC.) [and today the chairman of the board of directors of
WMI--P.M.] WAS CHARGED WITH UNFAIR BUSINESS PRACTICES ALONG WITH ELEVEN
[sic] OTHER INDIVIDUALS. [The Attorney General of Wisconsin brought
formal charges against Mr. Buntrock and 13 other individuals in 1962;
Waste Management, Inc. was not formed until 1968.] MOST NOTEWORTHY ARE
ALLEGATIONS THAT THOSE CHARGED HAD USED THREATS OF PHYSICAL HARM AND
INTIMIDATION AGAINST THEIR COMPETITORS. THE ALLEGATIONS IN THE
COMPLAINT DESCRIBE BEHAVIOR AND METHODS MOST TYPICALLY ASSOCIATED WITH
ORGANIZED CRIME OPERATIONS. AMONG THE ELEVEN [sic] INDIVIDUALS NAMED IN
THE LAWSUIT WERE RELATIVES OF JOHN MANDELLA (A FORMER HEAD OF THE
LIBRIZZI-MANDELLA ORGANIZED CRIME FAMILY OF MILWAUKEE, WISCONSIN).

The State of Wisconsin charged that 11 companies and 14 individuals,
including Mr. Buntrock, had conspired illegally to dominate the garbage
hauling business in Milwaukee County. (See Attachment C of the San
Diego Report.) The then-Attorney General of Wisconsin, John W.
Reynolds, went on to allege other activities in connection with the
alleged conspiracy (we quote verbatim):

THAT IN FURTHERANCE OF SAID CONSPIRACY THE DEFENDANTS THREATENED
PHYSICAL HARM TO THE OWNERS OF COMPETING RUBBISH COLLECTION, WASTE
REMOVAL AND DISPOSAL FIRMS, CORPORATIONS OR PERSONS ENGAGED IN SAID
BUSINESS AND THEIR FAMILIES AND DESTRUCTION OR DAMAGE TO THEIR PROPERTY
AND EQUIPMENT, OR THREATENED TO HAUL ALL THEIR ACCOUNTS FOR NOTHING IF
THEY OFFERED OR SUBMITTED COMPETITIVE BIDS TO ACCOUNTS HANDLED BY THE
DEFENDANTS OR IF THEY OBTAINED ACCOUNTS PREVIOUSLY HANDLED BY SAID
DEFENDANTS. FURTHER THAT THEY TIED SUCH THREATS TO MYSTERIOUS FIRES AND
ACTS OF VANDALISM BY UNKNOWN PERSONS WHICH RESULTED IN DAMAGE TO THE
TRUCKS AND OTHER PROPERTY OF SUCH COMPETITORS

The Milwaukee Circuit Court issued an injunction against such business
practices by the 11 firms and 14 individuals, including Mr. Buntrock,
an injunction that reportedly remained in effect for 8 years.

Waste Management, Inc. officials did not return our phone calls, so we
cannot offer Mr. Buntrock's rendition of his early years in the waste
business, nor can we present the company's response to the San Diego
Report.

The San Diego Report contains a welter of detail about Waste
Management's ongoing history of encounters with the law. For example,
September 20, 1991, the Sheriff's Department of Ventura County,
California, issued its own report on Waste Management, Inc. The entire
Ventura Report is included as Attachment B of the San Diego Report. The
Ventura Report describes 225 different criminal and civil actions in
which Waste Management and its subsidiaries have been charged during
the past 13 years. According to the Ventura Report, these 225 brushes
with the law cost WMI $52,321,933 in fines and penalties. The Ventura
Sheriff's listing of 225 cases is not an exhaustive recounting of WMI's
legal troubles, but it offers a fair spectrum of the kinds of
misdemeanors, administrative misdeeds, and felonies with which Mr.
Buntrock's company and its subsidiaries were charged during the 1980s.
(It also shows unmistakably that the company's 80-lawyer legal staff
has been able to deflect many governmental regulatory thrusts. In the
vast majority of cases in which WMI paid a fine, it did so after
signing a consent agreement with a government agency, often the EPA
[U.S. Environmental Protection Agency]. Such consent agreements let the
government claim victory while a company avoids coming to trial, avoids
acknowledging any wrongdoing, and avoids any dip in its profits.)

There is one area of company business that the San Diego Report ignores
entirely: recent allegations of bookkeeping irregularities. For
example, BUSINESS WEEK May 11, 1992 (pg. 89) reported that WMI:

[B]UMPED UP EARNINGS 6.8% LAST YEAR BY COUNTING $53.5 MILLION IN GAINS
STEMMING FROM STOCK SALES AND OTHER SECURITIES TRANSACTIONS BY THREE
SUBSIDIARIES. THAT'S USUALLY REFLECTED ON THE PARENT'S BALANCE SHEET BY
ADJUSTING THE (OFTEN HIGHER) NEW VALUE THE MARKET PLACES ON ITS STOCK
IN THE SUBSIDIARIES. INSTEAD, WASTE MANAGEMENT LUMPED THE STOCK
APPRECIATION IN WITH ITS OWN EARNINGS. THOUGH SEC [Securities and
Exchange Commission] RULES CALL FOR DISCLOSING SUCH GAINS AS A SEPARATE
LINE ITEM, REGARDLESS OF THEIR SIZE, THERE WAS NO SUCH ITEM IN THE
COMPANY'S FINANCIAL REPORTS. JAMES E. KOENIG, WASTE MANAGEMENT'S CHIEF
FINANCIAL OFFICER, DENIES THAT IT WAS TRYING TO ARTIFICIALLY INFLATE
NET INCOME: "WE FOLLOW PROPER ACCOUNTING, AND WE DON'T PLAY GAMES."

FINANCIAL WORLD June 23, 1992 (pg. 30) focused additional attention on
WMI's accounting practices. After reporting that WMI's competitor,
Chambers Development, had been forced to admit artificially inflating
its earnings--an admission that caused Chambers stock to drop 60% in
one week--FINANCIAL WORLD said:

WHILE THERE IS NO INDICATION WHATSOEVER THAT WASTE [Management, Inc.]
PLAYED THE KIND OF DOUBLE-CAPITALIZATION GAMES THAT CHAMBERS'S
ACCOUNTANTS DID, THE COMPANY CARRIES ON ITS BALANCE SHEET $1.2 BILLION
IN PREPAID EXPENSES AND "SUNDRY OTHER ASSETS", SOME OF WHICH REPRESENT
OVERDUE ACCOUNTS RECEIVABLE. THESE ARE THE SAME TYPE OF ACCOUNTS THAT
CAUSED THE CHAMBERS WRITE-OFFS. LOREN KELLOGG, WHO HAS TRACKED
QUESTIONABLE ACCOUNTING PRACTICES IN PUBLIC COMPANIES FOR YEARS IN HIS
Financial Statement Alert, WOULD LIKE THE DETAILS ON THESE ACCOUNTS,
BUT WASTE [Management, Inc.] WON'T GIVE THEM TO HIM.

FINANCIAL WORLD went on to describe why WMI's stock has been taking a
beating in the marketplace (down 20% since February): AFTER YEARS OF
SEEKING TO MITIGATE LIABILITIES UNDER THE SUPERFUND CLEANUP ACT, WASTE
MANAGEMENT WAS FINALLY FORCED LAST DECEMBER TO RECOGNIZE A POTENTIAL
$296 MILLION IN CLEANUP COSTS. THAT MAY NOT BE THE END OF IT. THE EPA
SUPERFUND CLEANUP LIST CURRENTLY INCLUDES 100 WASTE MANAGEMENT SITES.

Indeed, the salad days of ever-increasing profits may be over at WMI,
according to FINANCIAL WORLD. Citizen activists from across the country
are focused now on passing federal legislation giving municipalities,
counties and states the right to refuse entrance to trash shipped in
from other jurisdictions. Such "right to say no" legislation (also
called "flow control") could hurt Waste Management's profit picture.
The bill (S. 2877) passed the U.S. Senate by a large margin July 21.
Now the fight moves to the House of Representatives. To keep abreast of
this legislative battle, contact Will Collette at the Citizens' Coal
Council; telephone (202) 543-1394. To get the FINAL REPORT, WASTE
MANAGEMENT, INC., send $32.75 to: Clerk of the Board of Supervisors,
Room 402, County Administration Center, San Diego, CA 92101-2471.
Phone: (619) 531-5430. Be sure to ask for the full 260-page version.

--Peter Montague

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Descriptor terms: san diego, ca; wmi; organized crime; john mandella;
san diego report; chambers development; wmi; waste hauling industry;