BP’s $4.5 Billion in Fines Fund Gulf Cleanup and Conservation

Posted November 21, 2012 in Criminal Law Government by

Anchor-handling tugboats battle the blazing remnants of the off shore oil rig Deepwater Horizon. A Coast Guard MH-65C dolphin rescue helicopter and crew document the fire aboard the mobile offshore drilling unit Deepwater Horizon, while searching for survivors. Multiple Coast Guard helicopters, planes and cutters responded to rescue the Deepwater Horizon's 126 person crew. (Image source US Coast Guard)

Oil giant BP pled guilty last week to manslaughter and a slew of other criminal charges connected to the 2010 Deepwater Horizon oil rig explosion that killed 11 workers and released nearly five million barrels of crude oil into the Gulf of Mexico. In total, BP will pay more than $4.5 billion in fines and penalties in the settlement, including the single largest criminal fine in U.S. history.

“I hope that this sends a clear message to those who would engage in this kind of reckless and wanton conduct that there will be a significant penalty to pay,” said U.S. Attorney General Eric Holder at a press conference announcing the settlement.

Some of the money from the unprecedented fines may ultimately be funneled to victims and their families, but most of it will be used for conservation and cleanup efforts along the Gulf Coast. About $2.4 billion will go to the National Fish & Wildlife Foundation (NFWF), which will use the funds to construct barrier islands, rebuild wetlands and protect wildlife in the region. To put the massive payment into perspective, NFWF has received just over $2 billion in total funding since its start in 1984, according to CNN Money.

$350 million will go to the National Academy of Sciences to fund studies and projects aimed at protecting the Gulf Coast environment and its inhabitants. The academy will also study safety issues related to offshore drilling and help develop advanced environmental monitoring systems.


Damage Control

U.S. Attorney General Eric Holder

More than $1 billion in fines will go to the U.S. Coast Guard’s Oil Spill Liability Trust Fund, which is used to fund oil cleanup efforts by the Coast Guard and Environmental Protection Agency. The fund may also be used to cover damage claims from Gulf Coast residents, although most people affected by the spill have either sued BP, settled with them directly or filed damage claims through a $20 billion trust fund BP was ordered to establish in 2010. According to BP, the trust fund had paid $6.7 billion to claimants through the end of 2011.

BP will be allowed to stagger its payment of the $4.5 billion in fines over five years, making that burden easier to manage. Huffington Post notes that BP’s net 2011 income topped $16 billion, making the total penalty only about the size of the company’s profits for one fiscal quarter. Spread that out over five years, and the nation’s largest-ever criminal fine amounts to a pittance for the oil giant.


“Culture of Corporate Recklessness”

In August, the Department of Justice said it would prosecute BP for “gross negligence” and “willful misconduct” in a withering memo that accused the company of a “culture of corporate recklessness.”

“The behavior, words and actions of these BP executives would not be tolerated in a middling size company manufacturing dry goods for sale in a suburban mall,” the memo read. “Yet they were condoned in a corporation engaged in an activity that no less a witness than [BP CEO] Tony Hayward himself described as comparable to exploring outer space.”


Caught in a Lie

BP also defrauded its own investors. In the days following the explosion, the company publicly estimated 5,000 barrels of oil per day were flowing from the well, although its own internal reports indicated the rate could be as high as 146,000 barrels per day. Although a government task force later determined the flow to be between 52,700 and 62,200 barrels per day, BP continued to use the 5,000 barrel figure in its SEC filings for investors.

“The oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency — its own shareholders and the investing public who are entitled to transparency, accuracy, and completeness of company information, particularly in times of crisis,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

The $525 million fine levied by the SEC as part of the settlement will be used to establish a fund to compensate BP investors for financial losses connected to the fraud.

Do you think that the $4.5 billion penalty against BP is punishment enough? Or did the Department of Justice go overboard? Let us know in the comments section below.


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