BP Goes From Deepwater to Hot Water

The ongoing saga at BP highlights why safety should be such an important consideration for companies. Since the 2010 Deepwater Horizon explosion and resulting oil spill, BP’s stock has fallen and its reputation has been tarnished. Once touted as a leader in innovation, efficiency and environmental stewardship, BP is now a felon and serving probation as a result of the disaster in the Gulf of Mexico.

As a result of this disaster, on November 15, 2012, BP announced that it would be pleading guilty to the following criminal charges:

  • Eleven felony counts of “Misconduct or Neglect of Ships Officers” relating to the loss of eleven lives;
  • One misdemeanor count under the Clean Water Act;
  • One misdemeanor count under the Migratory Bird Treaty Act; and
  • One felony count of obstruction of Congress.

The company further stated that it will pay $4 billion, including $1.256 billion in criminal fines, and that it has agreed to a term of five years’ probation. Going forward, the company “agreed to take additional actions, enforceable by the court, to further enhance the safety of drilling operations in the Gulf of Mexico.” These actions will include third-party auditing and verification, training and well control equipment and processes.

While it is clearly impossible for companies to be sent to jail, the Wall Street Journal explains that, corporations can be held criminally liable for acts committed by its officers and employees if those acts were within the scope of their duties and were intended, at least in part, to benefit the company. Further, because of the limited penalties that can be imposed on corporations, when they are convicted of criminal offenses, fines are often imposed as a punitive measure.

According to the Wall Street Journal, as a result of these offences, BP may be forced to pay out the following:

  • $4.5 billion in penalties stemming from its felony charges, including $1.26 billion in criminal fines
  • $525 million in civil penalties over the next three years to settle claims by the SEC over the company’s reporting of the oil flow rate in the weeks following the Deepwater Horizon explosion;
  • $2.394 billion to the National Fish & Wildlife Foundation over five years;
  • $350 million to the National Academy of Sciences over five years;
  • $7.8 billion in a settlement agreement with thousands of businesses and individuals, which could increase based on a federal judge’s final approval in the coming weeks; and
  • $5-20 billion in civil penalties under the Clean Water Act, if BP is found guilty of gross negligence.

In addition, BP has already spent:

  • $14 billion on spill response and cleanup; and
  • $9 billion in claims to individuals and businesses affected by the spill.

While BP cannot be imprisoned, the same cannot be said for its employees, three of whom are currently facing criminal charges. In conjunction with BP’s criminal charges, it was announced that two well-site leaders and a former vice president of exploration for the Gulf of Mexico may be held liable for their actions in the Deepwater Horizon disaster. The well site leaders, Robert Kaluza and Donald Vidrine, each face 11 manslaughter charges while David Rainey, the former vice president, is being charged with obstruction of Congress.

U.S. Attorney General Eric Holder stated in a November 15th press conference that the charges and penalties levied against BP and its employees were “historic in nature.” Holder further explained that “[a] company has pled guilty to criminal felony charges—manslaughter. Individuals have been charged as well. Everything we are capable of doing in the criminal sphere, we have done today. And this is unprecedented, both with regard to the amounts of money, the fact that a company has been criminally charged and that individuals have been charged as well.”

If BP’s current issues don’t serve as a serious warning to executives about the very real and very significant implications of inattention to safety issues, the individual charges brought against BP’s employees may provide executives with a personal reason to ensure proper safety. Eric Holder stated in his November 15th press conference that he “hope[s] that this sends a clear message to those that would engage in this kind of reckless and wanton conduct that there will be a significant penalty to pay and that individuals in companies who are engaged in these kind of activities will themselves be held responsible. This is simply not a corporate plea—individuals—individuals have been charged.”

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