BP, as we know, has agreed to an historic settlement with the U.S. Justice Department to resolve some more of its liability from the nation’s biggest oil spill ever. The basics seem simple enough: The London-based energy company will pay $4.5 billion, including a record $1.26 billion criminal fine, to end all criminal charges and resolve U.S. securities claims stemming from the April 2010 Gulf of Mexico blowout that killed 11 men and spewed an estimated 4.9 million barrels of crude.
This news, however, raises as many questions as it answers. Let’s address some of them.
Is BP now finally off the hook?
Not by a long shot. So far, including the latest criminal settlement, BP (BP) has agreed to pay more than $12 billion in government and private settlements. It faces billions more in claims. As our cousins at Bloomberg News note in the dispatch linked to above, the British company remains at risk for as much as $17.6 billion in 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 before the spill. Some government officials put the remaining liability even higher. Garret Graves, chairman of Louisiana’s Coastal Protection and Restoration Authority, told Bloomberg News that 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 further settlements are possible before then.
Since BP has admitted to corporate criminal violations, why did the government charge individual company employees?
Corporations may or may not be “people,” as Republican presidential candidate Mitt Romney famously said during the campaign, but the government certainly cannot send BP to prison. To underscore the severity of the now-admitted wrongdoing in the Gulf disaster, the Justice Department also charged two BP well-site managers with involuntary manslaughter and a more senior executive with obstruction and false statements. The human defendants could each face as long as 10 years in prison.
Doesn’t BP’s guilty plea put the three individuals in a tight spot?
Yes, extremely tight. BP has confessed culpability. “We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions,” Chief Executive Bob Dudley said in a statement. In lay terms, the three charged individuals have been left hanging out in the Louisiana wind. Lawyers for all three say their clients are innocent scape goats. The two managers who were on the rig will doubtless shape their defenses around arguments that 1) blame ought to be spread more widely to include other employees and 2) at worst, their conduct amounted to negligence, 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 stubborn 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 spilling. In its plea, BP has essentially admitted that it misled lawmakers. Rainey was the mouthpiece. As one might recall from Watergate, it’s often the coverup, not the original crime, that sends a white-collar defendant to the big house. How Rainey can escape being the fall guy is not at all clear.
Since BP has admitted it violated criminal law, will the U.S. government stop doing business with the company?
Not necessarily. BP is a big supplier to the federal government. It sold more fuel to the Pentagon in 2011 than any other company–contracts worth $1.35 billion. As punishment for corporate wrongdoing, the government can impose a “contracting death sentence,” known as debarment. This would be a punishment that could seriously dent BP’s bottom line over many years. There’s no indication so far, though, that the federal government intends to go in this direction. The military needs fuel for its tanks and trucks and planes.
Where exactly do the BP fines and penalties go, and when does the company have to cut a check?
The latest 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; the department 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 initiatives. 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 Securities and Exchange Commission, and some of that money could flow back to investors who were misled by the company’s false statements about the rate of spillage as it happened.
Note, however, that by stretching out the payments over time, BP is able to rely on its still considerable annual revenue ($376 billion last year) to cover these 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 government bodies. BP has also proposed yet another $7.8 billion in settlements with other claimants. To date, it has spent a grand total of about $36 billion on the disaster, and it has set aside $42 billion to cover its losses. It may have to set aside more, of course, and it is not out of danger. As long as oil prices stay high, though, the company looks viable–certainly that’s what the U.S. government hopes, as BP’s continued success will now help fund public coffers.
