Why Corporations are Too Big to Jail in the Drug War


Two of America’s largest drug distributors, McKesson and Cardinal Health, recently entered into civil settlement agreements for not properly monitoring and reporting suspicious sales of prescription drugs. Naturally, these cases provided the DOJ and DEA with good PR. In fact, Lee Bentley, the U.S. Attorney for the Middle District of Florida, wrote an op-ed column, “The U.S. Attorney’s office is fighting opioid abuse.” However, let’s review the facts and decide if these cases should be a source of pride for the law enforcement community.

Lee Bentley was one of the lead investigators in a $44 million settlement agreement with Cardinal Health. That penalty resulted from violations in multiple states, but arguably the worst offenses occurred in Florida. Cardinal Health’s own investigators warned their company about highly suspicious pharmacies that were receiving massive quantities of OxyContin. Nonetheless, Cardinal Health didn’t report this information to the DEA and continued supplying the orders. Over the course of three years, records show that the Lakeland facility sold over 12 million oxycodone pills to only four Central Florida pharmacies.

Needless to say, that kind of brazen activity sounds like something that warranted a thorough criminal investigation. However, Cardinal Health’s CEO George Barrett astoundingly responded that he was “outraged” by the DEA’s decision in 2012 to suspend the Lakeland branch from selling controlled substances. Then again, you can apparently express that kind of audacity when you run the twenty-first ranked company in the Fortune 500. Three months later, after a federal appeal was denied, Cardinal Health agreed to a two-year license suspension for their Lakeland facility. And, in the end, after a lengthy staredown, the government blinked first. Cardinal Health never faced any criminal charges from the U.S. Attorney’s Office. This recent $44 million settlement was the culmination of four years of negotiations.

It was no coincidence that Cardinal Health’s Lakeland facility was responsible for the widespread distribution of prescription opiates. The state of Florida didn’t have a prescription drug monitoring program until 2010. Consequently, over 900 pain management clinics, or “pill mills,” sprouted throughout the state. These unregulated businesses served as wholesalers of black market OxyContin. Over time, the authorities eventually apprehended several shady doctors and pill mill operators. One such Tampa-area physician who was responsible for three overdose deaths, Edward Neil Feldman, was sentenced last May to 25 years. The judge told him, “If you would have been selling heroin on the streets and three people died, this would have been a much shorter trial and proceeding.” That’s an accurate assessment, but the justice system hasn’t been nearly as punitive with the drug manufacturers and distributors that have also played a major role in tens of thousands of overdose deaths.

Bear in mind, Cardinal Health had multiple run-ins with the DEA in the past. As early as 2005, the DEA warned their company about suspicious hydrocodone sales to online pharmacies. The DEA had even suspended the license of that same Lakeland facility, along with another one in Auburn, WA, in 2007 due to excessive sales of controlled substances to online pharmacies. That led to a $34 million settlement agreement in 2008.

No state has been hit harder by the opioid epidemic than West Virginia, which has the highest rate of overdose deaths. Once again, you have to look at Cardinal Health. Their company distributed 241 million hydrocodone and oxycodone pills to pharmacies throughout the state over a six-year period. That’s roughly 130 pills for every West Virginian! It’s difficult to label those facts as anything other than criminal misconduct, but Cardinal Health somehow negotiated a separate settlement in January with the state of West Virginia for $20 million.

McKesson, America’s top drug distributor and the 5th ranked company in the Fortune 500, also has a similar track record with the DEA. McKesson negotiated a $13 million settlement in 2008 for not properly monitoring and reporting their suspicious prescription drug sales. This same pattern continued afterward. From 2008 to 2013, their company only submitted reports for suspicious transactions in 16 out of their total 1.6 million orders for controlled substances in the state of Colorado. Obviously, few people would interpret that as acceptable corporate behavior, yet the company never faced the threat of an indictment.

McKesson agreed to a $150 million settlement in January of this year. In addition, McKesson’s license for selling controlled substances will be suspended in four states. They will also have to allow for independent monitoring. Nonetheless, these aren’t serious deterrents for a multi-billion dollar company. McKesson’s investors certainly weren’t dismayed by the news of this settlement agreement. In fact, McKesson’s stock price actually finished 0.85% higher on the day of this press release. Wall Street reacted in a similar way on December 23, 2016, when Cardinal Health’s $44 million settlement was announced; the stock price finished the day up 1.07%.

Make no mistake, Cardinal Health and McKesson received the white-glove treatment from the law enforcement community, but their cases were no different from any other powerful corporation. Even though their company was only slapped on the wrist, the size of McKesson’s latest fine and their new compliance requirements were actually unprecedented penalties for drug distributors. Suffice it to say, there is a two-tiered criminal justice system in this country.

Consider the case against Benjamin Galecki and Charles Ritchie whose company, Zencense, manufactured synthetic marijuana, or “spice.” Their small company of roughly ten employees arguably tried to work within the gray area of the law. After their warehouse was raided by federal agents in 2012, Zencense voluntarily opened their doors for a DEA inspection. However, both men were convicted in federal court this January, one week after McKesson’s recent settlement agreement. This was the conclusion to years of work by a task force involving multiple federal agencies, state, and local officials. As a result, Galecki and Ritchie are now facing potential sentences of 79 years in prison. That’s quite a dichotomy.

The DOJ’s press release referred to Zencense as a “$21 million spice distribution and manufacturing conspiracy.” Clark E. Settles, a special agent with Homeland Security Investigations, added, “Spice wreaks havoc on the lives of its users.” Granted, synthetic marijuana, or “spice,” can result in an overdose death (unlike marijuana), but it’s nothing like prescription opiates. Nonetheless, the narratives were more guarded in the DOJ’s press releases with Cardinal Health and McKesson, which focused heavily on compliance and reporting issues.

Understandably, some prosecutors don’t look forward to battling Fortune 500 companies that have the resources to contest convictions with endless appeals. However, there is also a layer of systemic corruption that protects corporate criminality. Unlike Zencense, the major drug companies have gained tremendous political leverage via campaign donations and professional lobbyists. Arguably, no industry benefits as much from the revolving door between government and the private sector. There are more former Congressmen and staffers representing drug companies as lobbyists, 857, than any other industry, according to the Center for Responsive Politics.

These kinds of conflicts of interest were evident in West Virginia’s case against Cardinal Health. West Virginia’s Attorney General, Patrick Morrisey, had been paid $250,000 in the past as a lobbyist for a trade group of drug wholesalers that included Cardinal Health. Morrisey had also received a total of $8,500 in campaign donations from Cardinal Health. Furthermore, his wife, Denise Henry, is a lobbyist for Cardinal Health. That’s why Morrisey insisted that he would recuse himself from this case. However, CBS News confronted him with the fact that he met with executives of Cardinal Health while this case was still pending. Morrisey responded that the meeting had no effect on the case and he was otherwise completely removed from the process.

There’s no proof that Morrisey was involved in a quid-pro-quo agreement. Then again, there didn’t need to be one. Everyone in the Attorney General’s Office knew that there could be a much better payday in the future if they were to tread lightly. There is a term for this situation in which government agencies become corrupted by the private businesses that they’re supposed to regulate; it’s known as “regulatory capture.” Former U.S. Attorney General, Eric Holder, is often the first person mentioned with this subject. During his tenure, the DOJ didn’t prosecute a single executive involved with the financial crisis. Ultimately, Holder, along with other top DOJ officials, returned to private practice working for the powerful law firm, Covington & Burling, which represents several major Wall Street banks.

Ethical issues inherently arise from the revolving door. Former government officials can exploit influence and insider knowledge to the detriment of public interest. For example, the drug manufacturer, Purdue Pharma, faced a civil suit in West Virginia in 2001 for their aggressive marketing of OxyContin. Their company had claimed that their drug had “reduced addiction risk” and even asserted that opioids posed an addiction rate of “less than one percent.” Purdue Pharma should have faced much more than a civil suit, but their defense attorney, Eric Holder, negotiated a sweetheart $10 million settlement. That was only a fraction of the profits from the sales of OxyContin.

To be fair, there are legitimate medical uses for prescription opioids, however, this industry needs to be tightly regulated. But here’s the kicker. Our government has the authority to keep this industry in check, but it doesn’t exercise that power. The production of drugs like OxyContin are not dictated by the supply and demand forces of most consumer goods. No. Drug companies, such as Purdue Pharma, meet privately with officials from the DEA to discuss their production goals. In turn, the DEA’s Diversion Control Division decides the limits for production for each drug. To be perfectly clear, the DEA dictates the exact market size for all controlled substances. However, their agency remarkably continued raising the limits for prescription opioids while this epidemic worsened.

The late Gene Haislip led the DEA’s Office of Diversion Control for 17 years. After retiring in 1997, he became one of the most vocal critics of that unit. He declared that the office had been besieged by special interests. In fact, Haislip recommended that the Office of Diversion Control be removed from the DEA’s control and operated as an independent agency. “The Diversion Control initiative should be aimed at the gradual replacement of incompetent individuals with more qualified officers and at restricting the role of private company executives and consultants away from determining policy,” he once wrote.

A couple of eye-opening investigations by The Washington Post affirmed Haislip’s assertions. These reports clearly demonstrated the corrupting power of the revolving door between the DEA’s Office of Diversion Control and the private sector. One article revealed that 42 former DEA officials (31 with the Office of Diversion Control) had taken jobs at pharmaceutical companies or law firms representing them since 2005. In most instances, they joined those companies only weeks after leaving the agency. Consequently, several field agents noticed a drastic shift in protocol as more ex-DEA officials began working for the drug companies. In fact, these agents insisted that their supervisors were often working against them to prevent their cases from coming to fruition.

Joseph Rannazzisi, who led the Office of Diversion Control for ten years, can attest that there is also outside political pressure that is placed on that division. He encountered pushback even when implementing limited actions against major drug distributors. As mentioned earlier, the DEA suspended the license of Cardinal Health’s Lakeland facility in 2012 when the agency was armed with a mountain of evidence. Nonetheless, Rannazzisi described the events leading up to that decision for The Washington Post. That included multiple encounters with top DOJ officials who pressured him to not suspend Cardinal Health’s license. These DOJ officials had been contacted by former members of the Justice Department who were presumably working on behalf of Cardinal Health.

All in all, it’s easy to see why companies like Cardinal Health and McKesson have been immune from criminal charges. Rannazzisi retired in 2015 after being ousted from his leadership position with the Office of Diversion Control. Like one of his predecessors (the late Gene Haislip), Rannazzisi is now an adamant critic of the special interests dominating government policy. He has publicly expressed that the pharmaceutical lobby has a “stranglehold” on Congress.

To wrap up, the DEA has deftly avoided accepting any culpability for this opioid crisis. For instance, the DEA Chief, Chuck Rosenberg, made an appearance last year on CBS This Morning. He was asked why his agency hasn’t significantly cut back the production quota for prescription opiates. Rosenberg replied that had the DEA had reduced the limits that year, but he didn’t mention the specifics. The production limit for oxycodone was reduced in 2016 to 108 tons, which is a 1300% increase from 20 years earlier. Rosenberg also essentially sidestepped the question by stating, “We don’t regulate the practice of medicine.” He added that our country needs to reduce the demand through education and rehab. Indeed, the latter part is accurate as drug addiction needs to be addressed as a public health issue. However, that doesn’t mean that the DEA should be let off the hook for their gross negligence of regulatory duties.

These stories provide more examples from the drug war that illustrate the deficiencies of our government. Powerful corporations will continue to be held unaccountable, contrary to public interest, until substantial reforms are made to campaign financing laws and new restrictions are put in place to close the revolving door. Keep these details in mind the next time that you read a story about a drug company that has been fined for criminal misconduct. And you can rest assured, there will be a next time.

Brian Saady is the author of the upcoming three-book series, Rackets, which is about the legalization of drugs & gambling, and the decriminalization of prostitution. www.briansaady.com. Twitter handle @briansaady

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