DOJ says Recology has satisfied requirements of San Francisco deferred prosecution agreement

Dive Brief:

• The US Department of Justice said in an Oct. 3 filing that Recology’s three San Francisco subsidiaries have met the terms of a 2021 deferred prosecution agreement, related to a bribery and corruption scheme, “in both letter and in spirit.”
• The defendants, known as the SF Recology group, entered into the three-year agreement on Sept. 9, 2021, following Bribery charges against former executives as part of a broader investigation. The company also paid a fine of $36 million, including $7 million to the City and County of San Francisco.
• Because it feels the terms of the DPA have been met, the federal government is now seeking to dismiss a one-count information that charged the SF Recology Group with conspiracy to commit honest services wire fraud. The motion is pending approval by Judge William Orrick.

Dive Insight:

The fallout from this federal investigation, which first came to light in 2020, sent shockwaves through San Francisco’s political world and eventually Recology. This move by the DOJ, if endorsed by Orrick, would largely close the door on that turbulent period for the company.

San Francisco-based Recology, a major private hauler that operates in California, Oregon and Washington, pulls a significant portion of its revenue from the local market due to what the DOJ has previously described as a monopoly on local waste and recycling services. This includes service provided by the three subsidiaries named in the filing — Recology San Francisco, Sunset Scavenger and Golden Gate Disposal & Recycling.

Recology’s local revenue was $386.5 million during the most recent rate year period, per a Sept. 30 presentation.

According to the latest DOJ filing, “the SF Recology Group was at the center of one of the largest corruption scandals in San Francisco history.” The company admitted in its DPA that Paul Giusti, in his role as government affairs manager for the company’s San Francisco group, directed “hundreds of thousands in bribes” to Mohammad Nuru, who was then the director of San Francisco’s Department of Public Works, in exchange for favorable business outcomes.

Per the filing, “the company admitted that the bribes were paid with the knowledge of two of Giusti’s superiors,” including John Porter, who managed the San Francisco group.

Nuru received a seven-year prison sentence in 2022. Giusti was sentenced to six months of home confinement in December 2023; plus probation, community service and a fine. Porter received a similar sentence in September 2023.

The other Recology supervisor, referred to as Executive 2 in prior filings, has not been charged. DOJ confirmed in its latest filing that this supervisor was the company’s former chief operating officer, Mark Arsenault.

According to DOJ, Recology “undertook significant changes in its executive leadership” after news of the investigation came to light in 2020. This includes the departure of Arsenault in summer 2020, who was replaced by Sal Coniglio, as well as the departure of former CEO Michael Sangiacomo later that year, which elevated Coniglio to the top role in January 2021. At the time, Sangiacomo’s move was described as a “retirement” and the company did not engage with questions about whether it was related to the investigation.

The filing notes that the group’s chief legal officer, Cary Chen, was also promoted to executive vice president and chief risk officer during this period. Chen, with support from outside counsel, “led the companies’ cooperation with the government’s corruption investigations and prosecutions” that was described as useful in the charges against Giusti and Porter. Chen was elevated to president earlier this year.

Additionally, the filing notes that Recology hired six outside auditors or attorneys to help develop an updated internal compliance program. The company’s board of directors also saw significant turnover. “By April 2021, seven of the eight board members had resigned, retired, or had been voted out of office” by the company’s employee stock ownership plan committee. This included the board’s longtime chairman.

During Giusti’s sentencing hearing, Assistant US Attorney David Ward (who signed this week’s filing) said the federal government did not have sufficient knowledge to prove that anyone else at the company was “criminally aware” of the corruption issues. At the time, Judge Orrick said he thought others at Recology “must have had a pretty darn good idea of ​​what was going on.”

The DOJ noted this week that the company “has built a substantial and ongoing compliance program,” in the years since, including a range of trainings and various other changes. In addition, this year “Recology explicitly barred political contributions to any elected official or candidate in the City of San Francisco by the company or its senior leadership, even in their individual capacity.”

In addition to cooperating with the DOJ’s other investigations, Recology also submitted three annual reports that detailed these measures, which were filed under seal.

Recology declined to comment on the DOJ’s latest motion.

In addition to the DPA and related fines, Recology committed to more than $100 million in ratepayer reimbursements through multiple rounds of agreements. The corruption scandal also led voters to approve a ballot measure in 2022 that changed how refusal rates were set, and set off attempts by competitors to win certain ancillary contracts. A civil suit requesting additional ratepayer reimbursements is also still pending.