British oil giant BP is agreeing to pay $4.5 billion in fines related to its role in the 2010 spill that killed 11 people and released five million barrels of oil into the Gulf of Mexico. The corporate criminal penalty is the largest of its kind in US history.
The settlement includes 14 criminal counts that range from misconduct and negligence to obstruction of Congress. It allows the company to put a significant legal battle behind it, though at no small cost. Moreover, other legal claims remain, including federal civil claims for damages under the Clean Water Act and private civil claims.
Though criminal settlements are hard to judge, given that much of the information is not public, the fines appear “appropriate,” says Richard Frank, director of the California Environmental Law & Policy Center at the University of California at Davis.
“It would appear the Justice Department was appropriately aggressive in pursuing and negotiating this,” he says. “One can always argue for greater fines, but these are pretty big numbers, and the fact that there’s a felony conviction on record against this corporation is significant.”
The 14 criminal counts against BP include:
- Eleven felony counts of misconduct and negligence related to the deaths.
- One misdemeanor count under the Clean Water Act.
- One misdemeanor count under the Migratory Bird Treaty Act.
- One felony count of obstruction of Congress related to incorrect flow-rate estimates of oil given to members of US Congress in the first 14 days of the disaster.
A separate indictment charges former senior BP executive David Rainey individually with obstructing a congressional investigation by making false statements regarding the flow rate from the wrecked well. The Justice Department also released a 23-count indictment involving manslaughter and Clean Water Act violation charges against Robert Kaluza and Donald Vidrine, both on-site supervisors at the time of the disaster.
Of the $4.5 billion in fines against the company, $525 million goes to the Security and Exchange Commission for misreporting the flow-rate estimates, $1.3 billion relates to the deaths of the 11 oil-rig workers, and $2.7 billion goes to the National Fish & Wildlife Foundation and National Academy of Sciences for violations of environmental laws.
The previous highest payout by a US company was in 2009 when pharmaceutical giant Pfizer pleaded guilty to misbranding its anti-inflammatory drug Bextra and was forced to pay $2.4 billion in penalties.
Corporate felonies typically bar companies from contracting with the federal government. But in its statement, BP says the company “has not been advised of the intention of any federal agency to suspend or debar” it from making or continuing contracts.
As a part of the deal, BP is required to work with regulators to develop new technologies involved in drilling safety. Also, two monitors – one for safety and one for ethics – will be tasked to work with and evaluate the company.
The company is still vulnerable to federal civil claims under the Clean Water Act, which could reach $21 billion. A federal trial in New Orleans is scheduled to address those claims in February 2013.
“On the criminal side we’re done, but in terms of BP paying out more, there’s the civil issue. This could go on for years still to come,” says Montré Carodine, a professor at the University of Alabama School of Law in Tuscaloosa.
Sen. David Vitter (R) of Louisiana released a statement Thursday asking President Obama “to be equally aggressive in securing civil monies.” “I certainly hope they didn’t trade any of those monies away just to nail this criminal scalp to the wall,” he said.
In its statement, BP said it will “continue to vigorously defend itself against all remaining civil claims and to contest allegations of gross negligence in those cases.” The company insists that Thursday’s guilty plea is based only on ordinarily negligent conduct. Gross negligence implies criminal intent, which can result in much stiffer penalties, Professor Carodine says.
In April, the company announced it would spend an estimated $7.8 billion to settle class-action litigation brought by more than 100,000 individuals and businesses with claims related to economic loss and medical hardship. The company also faces other lawsuits from financial institutions, casinos, and local governments for losses related to the moratorium following the disaster that halted drilling operations for six months.
For those hardest hit by the oil spill, the criminal settlement is not necessarily a sign of relief.
“I don’t know who is going to take the fall. Is it a working stiff or it one of the hot shots up top who set the policy and procedures” that led to the spill? says Tony Kennon, mayor of Orange Beach, Ala., a coastal town where the population swells to 100,000 during the summer tourist season. “Who was really responsible? There are just so many questions, it’s hard to know what the answers are and what the ramifications are going forward.”
As for the $4.5 billion penalty, Mayor Kennon says it’s not enough.
“I wanted to see a real slap aside the head to get [BP’s] attention, so it never happens again,” he says.
The unprecedented scope of the disaster makes determining fines difficult, acknowledges Carodine.
“We’ve never seen anything like this, with all the lives lost and also the harm done to the Gulf Coast region,” she says. “I would think that they looked at the fines in the past and compared it to what happened and came up with the numbers.”
BP reported in October that its third-quarter earnings rose 41 percent to $5.2 billion, compared with $3.7 billion in the previous quarter.