Shady Businesses

West Virginia Spill: Where “Regulation” Is a Dirty Word, Shady Businesses Flourish

by Joshua Holland

Asked about the spill of thousands of gallons of toxic chemicals into a West Virginia river – a disaster that shut down schools and businesses, sent hundreds of residents seeking medical treatment and left an estimated 300,000 Mountain Staters without potable water – Speaker John Boehner (R-OH) told reporters that he is “entirely confident that there are ample regulations already on the books to protect the health and safety of the American people.”

Others weren’t as sanguine. “We have a culture of deregulation – regulation has been turned into a dirty word down here,” says Russell Mokhiber, the West Virginia-based editor of the Corporate Crime Reporter. “Both the Democratic and Republican parties are complicit,” he told Moyers & Company.“The chemical and coal industries have a stranglehold on most institutions in the state. The political situation is locked up.”

Jennifer Sass, a lecturer in environmental health at George Washington University told The New York Times, “West Virginia has a pattern of resisting federal oversight and what they consider EPA interference, and that really puts workers and the population at risk.”

A 2009 investigation by the Times found that “hundreds of workplaces in West Virginia had violated pollution laws without paying fines.”

Current and former West Virginia Department of Environmental Protection employees said their enforcement efforts had been undermined by bureaucratic disorganization; a departmental preference to let polluters escape punishment if they promised to try harder; and a revolving door of regulators who left for higher-paying jobs at the companies they once policed.

But this isn’t just a story of anti-regulatory zeal – and the price hundreds of thousands of West Virginians paid for it. As new details emerge about Freedom Industries, the company responsible for the leak, it’s becoming clear that it’s also a tale of how shady businesses can prosper in an environment where regulatory capture by an industry is so deeply entrenched.

Even the history of Freedom Industries is murky. It was co-founded in 1992 by Carl Kennedy and Gary Southern — who during a Friday press conference sipped bottled water and told reporters that he’d had a really trying day. Southern had been president but the firm’s website now lists Dennis Farrell, a college friend of Kennedy’s (with whom he also opened a sports bar in 2002), as president instead. As Businessweek put it, “That clearly needs sorting out.” According to The Charleston Gazette, Southern is also the president of Enviromine, “which makes products to help remediate environmental problems from mining.”

Kennedy may or may not remain with the company; according to The Gazette, he’s still listed on documents the firm filed with the Secretary of State’s office, but a woman who answered the phone at the company said he was no longer with Freedom Industries.

That may be a distinction without a difference. Only weeks ago, the firm merged with several others: Etowah River Terminal, Poca Blending and Crete Technologies. According to The Gazette, in 2007, Kennedy claimed to have stakes in both Etowah River Terminal and Poca Blending. Prior to the merger, these companies already had complementary operations in the Kanawha Valley, known as “Chemical Valley.”

Carl Kennedy’s history reads like that of a character in an Elmore Leonard or Carl Hiaasen novel. In 1987, he pleaded guilty to selling between 10 and 12 ounces of cocaine in a case that would lead to the federal prosecution of then-Charleston Mayor Mike Roark, a former prosecutor himself who, according to The New York Times, “was once nicknamed ‘Mad Dog’ for his zeal in fighting drug abuse.” He was charged with 30 counts of cocaine possession.

The Gazette’s David Gutman reports that in the early 2000s, when Kennedy was the accountant for Freedom Industries, Poca Blending and New River Chemical Co., he pled guilty to withholding $1 million in taxes from employees’ paychecks and pocketing it rather than sending it to Uncle Sam. He also owed $200,000 in unpaid state taxes. Sentenced to three years in prison, Kennedy got his time cut in half “after he cooperated with authorities by making controlled cocaine buys and wearing a wire in conversations with a former business associate.”

In 2005, Etowah River Terminal lost its license for failing to file an annual report. It was resurrected in 2011, according to The Gazette.

Despite Kennedy’s reluctance to send tax dollars to Washington, in 2009 Freedom Industries was happy to accept stimulus funds which helped the company stay afloat. David Gutman recalled that “sand, silt and mud had built up in the river, making it difficult for barges to travel the 2.5 miles from the company’s river terminal to the Elk’s confluence with the Kanawha.”

The company was in deep trouble until the Army Corps of Engineers dredged the waterway, thanks to a $400,000 grant from the American Recovery and Reinvestment Act. “It could’ve put us out of business,” Dennis Farrell told the Charleston Daily Mail. “At some point we wouldn’t have been economically fit to run the facility. That’s our claim to fame: the barges.”

Last week, Gary Southern told reporters that Freedom Industries’ employees had discovered the spill, but that claim was contradicted by reports that officials from the state’s Environmental Protection Agency found it independently after nearby residents complained of a suspicious odor.

According to the Daily Mail, a team of inspectors visited the facility this week, and issued five violations for poor maintenance and operations, insufficient employee training and reporting, and storing chemicals in an above-ground tank without a secondary containment wall.

As The New York Times noted, “lawmakers have yet to explain why the storage facility was allowed to sit on the river and so close to a water treatment plant that is the largest in the state.” The facility hasn’t been inspected since 1991 because, unlike other states, West Virginia requires it only of chemical manufacturers and emitters, not storage facilities.

According to The Gazette, in 2010, experts from the US Chemical Safety Board asked the state to create a new program to prevent accidents and releases in Chemical Valley. Those recommendations followed a 2008 fatal explosion at a Bayer Chemicals plant. They were ignored.

The chemical released last week, 4-methylcyclohexane methane, isn’t classified as a hazardous material, which under state law would have required the leak to be reported within 15 minutes. The Daily Mail reported that “a different legislative rule states a facility must give ‘immediate’ notice of a spill, but leaves it up to the head of the [state’s Department of Environmental Protection] to determine what ‘immediate’ means in each case.”

The chemical’s classification as non-hazardous may also explain why state officials didn’t have an emergency response plan in place, despite the facility’s close proximity to a major water supply.

That 4-methylcyclohexane methane isn’t considered hazardous doesn’t mean it’s safe. Richard Denison, a senior scientist at the Environmental Defense Fund, told Mother Jones that little is known about its potential effects in humans. According to Denison, studies have found the substance to be lethal in rats at high doses, but it’s impossible to extrapolate from those data how humans might respond to smaller quantities of the chemical.

Today, many West Virginia residents are angry that they had no idea of the hazards posed by the storage facility. Angie Rosser, executive director of the West Virginia Rivers Coalition, told The Huffington Post, “No one seemed to be aware or care that this dangerous chemical was upstream from our largest drinking water intake in the state. It was a recipe for disaster.” The same chemicals are stored in above ground tanks across the state, but it’s difficult for public health and environmental activists to know where.

That’s why Russell Mokhiber cautions against focusing too much on Freedom Industries itself. “It’s really not about an individual corporation,” he said. “It’s a question of why the state has allowed the chemical and coal industry to get away with this. Because however you slice it, you see privatization and deregulation at the heart of these kinds of cases.”