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.

Late last year I testified before the Economic Development Committee in support of the proposed legislation. I believed then, as I do now, that this legislation would prove essential to the development of an honest and competitive business environment at the Hunts Point and other wholesale markets. In February this year, the United States Court of Appeals for the Second Circuit upheld the constitutionality of similar legislation enacted in 1996 to combat corruption in the City’s commercial carting industry. The Court held that the government has a “compelling interest in combatting crime, corruption, and racketeering — evils that eat away at the body politic.” Sanitation and Recycling Industry, Inc. v. City of New York, 1997 U.S. App. LEXIS 3600, *30 (2nd Cir. 1997). This federal appellate endorsement of the City’s carting law makes this proposed legislation stronger and less vulnerable to legal challenge.

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 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 in 1996 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 exercised control over the movement of seafood at the market through a system of mob-dominated extortion and kickbacks. A federal court in July 1996 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 and carting costs have declined sharply. The World Trade Center’s annual bill reportedly has dropped 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. In March 1997 the Commission lowered the maximum prices that carters can charge by up to 35%, a move which is expected to result in savings to small and medium-sized New York business of around $300 million per year. In the words of Deputy Mayor Randy Mastro, “The tax we’re eliminating is the mob tax on commercial carting, and it’s about time.”

As noted above, 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)

In its February 1997 decision affirming the constitutionality of this law the Federal Court of Appeals for the Second Circuit described the “targeted criminal cartel [a]s a `black hole’ in New York City’s economic life.” Sanitation and Recycling Industry, Inc. v. City of New York, 1997 U.S. App. LEXIS 3600, *1 (2nd Cir. 1997). The court found that the law was “narrowly tailored to achieve the compelling governmental interest in terminating 40 years of criminal control of the carting industry in New York City.” Id., 1997 U.S. App. LEXIS at *38.

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 three 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 to reduce 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.

The proposed legislation also provides that the Commissioner of the Department of Business Services may require existing and potential Hunts Point businesses to “enter into a contract with an independent auditor” in order to ensure that the activities of these businesses are in compliance with local, state, and federal law. This independent entity is then to report the findings of its monitoring and investigation to the Commissioner periodically. (See, Proposed Int. 806-A § 22-253(b)(iii)).

This independent monitoring program will complement the proposed licensing, registration and identification system by providing targeted oversight for particular entities to ensure the maintenance of honest business practices on a continuing basis.

In my testimony before the Council in October 1996 I recommended the adoption of an independent monitoring program at the markets using the Independent Private Sector Inspector General (“IPSIG”). An IPSIG is a state-of-the-art monitoring mechanism using auditing, investigative, legal 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. The use of IPSIGs and independent auditors is increasingly favored by municipal agencies faced with pervasive and entrenched corruption. The Inspector General of New York City’s School Construction Authority has an established monitoring program under which particular firms wishing to do business with the Authority may be required to hire an IPSIG or like entity. A similar approach was taken in the 1996 legislation aimed at reforming the City’s commercial carting industry. In November of last year, the administration of Dade County, Florida, created a pool of IPSIGs to help restore public confidence in a local government confronted with a huge budget deficit and plagued by allegations of fraud, corruption and mismanagement. In December of last year the Department of Investigation issued a request for proposals from IPSIGs to investigate and monitor contractors who have entered into agreements with the City authorizing review of their business practices. The IPSIGs will be appointed by and report their findings directly to the City. A monitoring program at the affected markets will provide a means whereby the City can ensure that corruption is controlled in the long as well as the short term.

The proposed legislation now before the Council 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.