BP Spill Payout Probe Finds Corruption and Lets Money Keep Flowing

For months, something has seemed awry with the multibillion-dollar BP oil spill settlement. Now an investigation by ex-FBI Director Louis Freeh has produced a perplexing set of initial findings: Freeh endorsed the Louisiana-based settlement administrator even as he found that some of the administrator’s handpicked senior aides may deserve to be criminally prosecuted for corrupting the payout process.

As I wrote in a recent Bloomberg Businessweek cover story, the private claims process following BP’s 2010 Gulf spill led to some eyebrow-raising demands for oil-company cash. BP has already paid out more than $25 billion in damage claims and cleanup costs, and the company asked the presiding federal judge, Carl Barbier of New Orleans, to intervene. He declined, but in early July he appointed Freeh as a special master to investigate.

On Friday, Freeh reported that he “had not found evidence” that Patrick Juneau, the court-appointed claims administrator, “engaged in any conflict of interest, or unethical or improper conduct.” Moreover, Freeh recommended that Barbier allow Juneau to continue to pay claims, despite BP’s objections that hundreds of millions of dollars in payouts have been based on fabricated or exaggerated economic harm.

Freeh’s flashing the green light on claims payments seems a little odd. He found that two of Juneau’s top assistants, a husband-and-wife team of lawyers from New Orleans, “may have violated federal criminal statutes regarding fraud, money laundering, conspiracy or perjury.” More broadly, he added, “many of [Juneau's] key executives and senior attorneys engaged in conduct which the special master finds to be improper, unethical, or not in accordance with the [claims facility's] code of conduct. The nature and seriousness of this type of conduct varied in degree but was pervasive and, at its extreme, may have constituted criminal conduct.” Not exactly a report card one would run home to show mom and pop.

BP immediately tried to accentuate the negative in Freeh’s 93-page report. The investigation “confirms what BP has suspected for some time: there has been fraud and unethical conduct within the facility itself and among various claimants and their lawyers—and immediate steps need to be taken to prevent it in the future,” Geoff Morrell, a spokesman for the London-based company, said via e-mail. And yet Freeh said payments should continue, a conclusion that Barbier promptly reiterated in a separate court order.

Juneau said in his own statement that he “found the Freeh report to validate the work that our team of 2,700 hard-working professionals has been doing.” He called the alleged wrongdoing by his two former employees “an isolated situation” that has already been addressed by their being dismissed. Freeh found “no evidence that the two employees directly manipulated the valuation of claims” or that the overall payment of claims was affected by the misconduct, Juneau said.

The lawyers representing claimants celebrated. “We are pleased—but not surprised—that Judge Freeh’s report confirmed what we knew to be true all along: that Patrick Juneau has, for more than a year, led the court-supervised settlement program with integrity, transparency and objectivity,” said Steve Herman and Jim Roy, co-lead attorneys for the plaintiffs’ committee overseeing the spill litigation.

What to make of all this? A claims-payment operation contaminated by “pervasive” misconduct receives plaudits from the presiding federal judge? Full steam ahead?

At BP’s behest, the federal appeals court is reviewing the entire situation and is expected to make a pronouncement in coming weeks. Perhaps the appellate judges will explain how a finding of pervasive impropriety translates into a clean bill of health.

    Before it's here, it's on the Bloomberg Terminal.