Why $4.5 Billion Doesn't Get BP Off the Hook
The details of BP’s historic settlement with the U.S. Department of Justice on Nov. 15 seem basic enough: The energy giant will pay $4.5 billion, including a record $1.26 billion criminal fine, to end all criminal charges and settle U.S. securities claims stemming from the April 2010 blowout that killed 11 men and spewed an estimated 4.9 million barrels of crude into the Gulf of Mexico. Disbursing that much cash isn’t so easy, though—and it still isn’t enough to put the matter to rest.
Where exactly does the money go?
The settlement will be paid out over five years. The $1.26 billion in criminal fines will go to a fund overseen by the Justice Department, which has a lot of discretion about how to spend it. Another $2.39 billion will go to the National Fish and Wildlife Foundation for cleanup. And $350 million will go to the National Academy of Sciences for research on environmental damage to the Gulf. BP will make payments totaling $525 million over three years to the U.S. Securities and Exchange Commission; some of that money could flow back to investors who were misled by the company’s false statements about the rate of spillage.
By stretching out the payments over time, BP will be able to rely on its still-considerable annual revenue ($376 billion last year) to cover the expenses. Before the latest criminal settlement, the company had spent $14 billion on direct cleanup efforts and $9 billion on civil payouts to individuals, businesses, and the government. BP has also proposed yet another $7.8 billion in settlements with other claimants. To date it has spent a total of about $36 billion on the disaster; the company set aside $42 billion to cover its losses.
Is BP off the hook?
Not by a long shot. So far BP has agreed to pay more than $12 billion in government and private settlements, but it faces billions more in claims. The British company remains at risk for as much as $17.6 billion to satisfy potential civil fines from alleged violations of the Clean Water Act and demands by the U.S. and Gulf states for additional money to restore the region’s coastline and waters to their condition prior to the spill. Some government officials put the remaining liability even higher. Garret Graves, chairman of Louisiana’s Coastal Protection and Restoration Authority, says the additional sums will “easily be in the tens of billions of dollars.” A federal civil trial is scheduled to begin in New Orleans in February, although settlements are possible before then. BP says it will continue to vigorously defend itself against all remaining civil claims.
BP has admitted to corporate criminal violations. So why did the government charge individual company employees?
Because a corporation can’t be put behind bars. To underscore the severity of the now-admitted wrongdoing in the Gulf disaster, the Justice Department charged two BP well-site managers with involuntary manslaughter and a more senior executive with obstruction and false statements. The defendants could face as many as 10 years in prison.
Doesn’t BP’s guilty plea put these three in a tight spot?
Extremely tight. BP has confessed culpability. “We apologize for our role in the accident, amind as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions,” Chief Executive Officer Bob Dudley said in a statement. Lawyers for all three employees say their clients are innocent scapegoats. The two managers who were on the rig will likely shape their defenses around arguments that 1) the blame ought to be spread more widely to include other employees, and 2) at worst, their conduct reflected foolish error, not the recklessness required to prove manslaughter. Those are potent contentions in a courtroom, where skilled criminal-defense attorneys need to generate reasonable doubt in the mind of just one juror. The third defendant, David Rainey, the former vice president of exploration for the Gulf of Mexico, was accused of lying to Congress about the extent of the spill as it was happening. In its plea, BP has essentially admitted it misled lawmakers.
Will the U.S. government stop doing business with BP?
Not necessarily. BP is a big supplier to the federal government. With contracts worth $1.35 billion, it sold more fuel to the Pentagon in 2011 than any other company. As punishment for corporate wrongdoing, the government can impose a contracting death sentence, known as debarment. This could seriously dent BP’s bottom line for many years. There’s no indication so far, though, that the government intends to do that.