Statement of Neil V. Getnick about Proposed New York City Legislation to Regulate the Hunts Point Food Distribution Center and Other Public Wholesale Markets

I am Neil Getnick, managing partner of the New York City law firm Getnick & Getnick LLP. We practice in the areas of commercial counselling and litigation, with a particular focus on civil prosecution, the use of civil remedies to combat commercial fraud and related criminal conduct.

Since 1991, I have chaired the New York State Bar Association Commercial and Federal Litigation Section Civil Prosecution Committee. Since 1994, I have served as the President of the International Association of Independent Private Sector Inspectors General. I am speaking to you today in an individual, not representative, capacity.

The Hunts Point Market legislation marks an important next step in Mayor Giuliani’s pro-business agenda for New York City. The administration’s plan to administer the City’s major wholesale produce and meat markets to reduce corruption, a plan which is patterned after the system it has successfully implemented in the Fulton Fish Market, is a milestone in its ongoing campaign to improve the bottom line for the City’s business and consumers by restoring and maintaining honest business practices in industries long infiltrated by organized crime and corruption.

Like the Fulton Fish Market plan, and the law enacted earlier this year to reshape the commercial carting industry, this proposed legislation responds to the need to reform a corrupted business environment and not merely to provide a short-term solution for individual corrupt acts. Beyond prosecution, the plan provides a long-term administrative and regulatory solution to entrenched corruption which will complement existing criminal and civil prosecutions targeting bad actors and the profits of their corrupt activities.

The months since this corruption control strategy was implemented in the Fulton Market and the carting industry have seen the methodical erosion of organized crime influence and the rebirth of honest and competitive business practice in those industries. In a series of City initiatives in the Fulton Market, corrupt wholesale dealers and companies providing security and parking spaces for retailers and restaurateurs have been evicted; garbage hauling costs have been halved by replacing the indicted carting company that previously serviced the market with the national waste-hauler Browning Ferris Industries; and an exclusive license has been granted to a pre-qualified company to unload fish from trucks at the market following the ouster of six companies found by the City to have exercized control over the movement of seafood at the market through a system of mob-dominated extortion and kickbacks. A federal court in July this year refused to entertain a constitutional challenge to the legislation, the judge noting that the law represented “a coherent policy of law enforcement” that was “justified with regard to the need for combating crime in the Fulton Fish Market.” (Judge Thomas P. Griesa, The Committee to Save the Fulton Fish Market Inc., v. City of New York, 1996 U.S. Dist. LEXIS 9297 (S.D.N.Y. 7/3/96))

The changes sweeping the waste hauling and disposal industry are a testament to the successful combination of structural reforms and aggressive law enforcement. For decades, the industry was dominated by an organized crime cartel that inflated carting costs by as much as forty percent, forcing costs in the City to a level more than triple that in Los Angeles. In 1995 and 1996, the Manhattan District Attorney criminally and civilly prosecuted many of the City’s carters, carting companies and trade associations. In 1996, legislation sponsored by the Mayor and the Public Advocate to regulate and restructure the industry was implemented, requiring licensing of carters, the creation of “competition zones” in which an exclusive right to collect garbage would be competitively bid with independent monitoring of carters in appropriate circumstances. Together, these forces have generated a strongly competitive climate in which Browning Ferris Industries and other national waste-hauling concerns have substantially underbid the old carters. Carting costs have declined sharply, for some customers by as much as 50%. The World Trade Center’s annual bill reportedly has gone from $2.7 million to $675,000. The Trade Waste Commission, set up by the new legislation, broke the corrupt cartel by giving customers the right to cancel existing carting contracts and to freely negotiate deals with others. Lawsuits by carters attacking the constitutionality of the new law, which requires background checks of licensees, oversight of contracts and two-year limits on them, have been singularly unsuccessful. “Clearly,” wrote Judge Pollack in one suit, the law “was essential, overdue and carefully tailored to protect the public interest with measured consideration of the interests and welfare of those who strive only for fair business conditions.” Sanitation and Recycling Industry, Inc. v. City of New York, 928 F.Supp. 407, 424 (S.D.N.Y. 1996); see also Universal Sanitation Corp. v. Trade Waste Commission of the City of New York, 1996 U.S. Dist. LEXIS 15313 (S.D.N.Y. 10/16/96)

Other endeavors in New York City in recent years to eradicate corruption by fundamentally changing the business environment in which it thrives have produced comparable economic benefits. Thus the court-ordered removal of a mob-dominated cartel from the garment center trucking industry in 1992 has, under the scrutiny of a court-appointed monitor, resulted in a 20% reduction in shipping costs in the center and the return of free market competition to the industry. For years, the Jacob K. Javits Convention Center was plagued by preferential hiring practices favoring mob-sponsored members of the carpenters union, extortionate prices, bribery, union shakedowns and other mob-related activities. In the two years since 1994, new management at the Center and a monitor appointed by the court to oversee the carpenter’s union have achieved an end to corrupt practices through administrative and regulatory means. After years of losing money, the Center is fully booked and is turning a profit, and exhibitor’s costs have dropped by at least 10%.

The proposed law to regulate the Hunts Point and other public markets seeks to apply the experience of these prior efforts reducing mob infiltration of legitimate industry. Wholesale dealers in the affected markets supply most of the unpackaged fruit, vegetables and meat sold to retail stores and restaurants in the City and generate around two and a half billion dollars in sales annually. The proposed law will provide significant economic benefits to consumers by eliminating the “mob tax” arising from the payment of extortion and kickbacks and by reinstating free and open competition. It will prevent exploitation of workers who have been denied union wages, pensions and benefits through the mob’s stranglehold on the market’s economy. It will generate revenues for the City by ending sales and income tax avoidance. It will create an environment that is free of violence, the threat of violence and the taint of corruption.

An additional tool that could be used within the proposed system of background checks and oversight is the Independent Private Sector Inspector General, a highly developed monitoring mechanism. A similar approach has been taken already in the legislation passed earlier this year aimed at reforming the City’s commercial carting industry.

The Independent Private Sector Inspector General (“IPSIG”) is a state-of-the-art monitoring mechanism that was developed by a working group of public and private sector attorneys, investigators and accountants in New York. An IPSIG is an independent, private sector firm with legal, auditing, investigative, and loss prevention skills, hired by an organization to ensure compliance with relevant laws and regulations and to deter, prevent, uncover, and report unethical and illegal conduct by, within and against the organization. An IPSIG monitoring program at the markets would complement the proposed licensing, registration and prequalification system by providing targeted oversight for particular entities to ensure the maintenance of honest business practices.

The plan represents a fully committed City governmental approach aimed at insuring an honest and profitable business environment in the affected markets. It deserves the full support of the Council.