BP settles criminal charges for $4 billion in spill; supervisors indicted on manslaughter

November 15, 2012

BP has agreed to plead guilty to 14 criminal counts, including manslaughter, and will pay $4 billion over five years in a settlement with the Justice Department over the April 20, 2010, drilling disaster in the Gulf of Mexico that killed 11 people and unleashed the worst offshore oil spill in U.S. history, officials announced Thursday.

The fine is the largest criminal payment in U.S. history, Justice Department officials said, but BP still faces even bigger penalties from federal civil charges, including those under the Clean Water Act.

The Justice Department also sought to attach faces to the disaster, filing manslaughter charges against two BP rig supervisors and obstruction charges against a BP executive who allegedly lied to Congress. The three are not covered by the BP settlement.

“I hope this sends a clear message to those who would engage in this wanton misconduct that there will be a penalty paid,” Attorney General Eric H. Holder Jr. said during a news conference in New Orleans on Thursday.

The two top-ranking BP supervisors on the Deepwater Horizon drilling rig — Robert M. Kaluza, 62, of Henderson, Nev., and Donald J. Vidrine, 65, of Lafayette, La. — were indicted on 23 counts, including involuntary and seaman’s manslaughter, for allegedly ignoring warning signs of the blowout that set fire to the rig, which later sank.

A separate indictment accused David Rainey, a former BP vice president, of hiding information from Congress and lying to law enforcement officials by understating the rate at which oil was gushing into the Gulf of Mexico. Rainey, 58, was BP’s deputy incident commander and BP’s second-highest-ranking representative at the Coast Guard’s unified command for the spill response.

“Make no mistake: While the company is guilty, individuals committed these crimes,” said Assistant Attorney General Lanny A. Breuer, head of the criminal division. Of the two rig supervisors, Breuer said, “In the face of glaring red flags indicating that the well was not secure, both men allegedly failed to take appropriate action to prevent the blowout.”

Attorneys for the men said they will fight the charges.

Separately, the London-based oil giant will pay $525 million over three years to settle claims with the Securities and Exchange Commission, which said the firm concealed information from investors. The settlement is subject to U.S. federal court approval.

BP said it would increase its existing $38.1 billion charge against earnings for the spill by $3.85 billion.

BP and the Justice Department failed to agree on a separate settlement of federal civil claims, including federal and state claims of damages to natural resources. BP said it is “prepared to vigorously defend itself against remaining civil claims.” Clean Water Act fines alone could total $5 billion to nearly $20 billion, depending on whether BP is found to be guilty of gross negligence or willful misconduct.

But the settlement resolves all criminal charges. BP agreed to plead guilty to 11 felony counts of “misconduct or neglect of ships’ officers.” Jane Barrett, an environmental law professor at the University of Maryland, said the seaman’s manslaughter statute, first passed in 1838 in response to steamboat accidents, has a lower threshold for guilt including “misconduct, negligence or inattention to duties.”

While the technology required to drill — and cap — an oil well in deep water can be mind-boggling, cleaning up the spill required mostly tedious manual labor.

BP also agreed to plead guilty to 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 last of those was for lying to Congress. Rainey allegedly said that BP’s out-of-control Macondo well was leaking at a rate of 5,000 barrels a day when he had an e-mail from one of BP’s own experts contradicting that. Later it became clear that the well was leaking at more than 10 times the rate Rainey gave lawmakers. Rainey also concealed his own higher estimates, derived from calculating methods he found by surfing the Internet, the indictment said.

“David Rainey is a man of high integrity and moral character who has done absolutely nothing wrong,” said Brian Heberlig, a partner at Steptoe & Johnson, in a statement. “We are profoundly disappointed that the Department of Justice is attempting to turn a tragic accident and its tumultuous aftermath into criminal activity. We are even more disappointed that BP has succumbed to the pressure and agreed to this extortionate settlement.”

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region,” Bob Dudley, BP’s chief executive, said in a statement before Holder’s announcement. “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.”

“We believe this resolution is in the best interest of BP and its shareholders,” Carl-Henric Svanberg, BP’s chairman, said in the statement. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims.”

BP said in a news release its criminal plea would not undercut efforts to contain the size of civil claims. It said 13 of the 14 criminal charges “are based on the negligent misinterpretation of the negative pressure test conducted on board the Deepwater Horizon.” BP said that it “acknowledged this misinterpretation more than two years ago” and insisted that the agreement “is consistent with BP’s position in the ongoing civil litigation that this was an accident resulting from multiple causes, involving multiple parties, as found by other official investigations.”

“It’s obviously not cheap,” said Pavel Molchanov, an oil analyst at the investment firm Raymond James. But, he said, “it’s a positive step” from an investor’s point of view. “By eliminating the criminal overhang, the inference is that BP can afford to be more aggressive in dealing with the civil claims,” he said. “They no longer have to fear the criminal stick.”

BP’s stock closed at $40.30 a share, up 0.35 percent. The company’s market capitalization is $128 billion.

BP’s $4 billion settlement is composed of $1.256 billion in criminal fines, $2.394 billion to be paid to the National Fish and Wildlife Foundation and $350 million to be paid to the National Academy of Sciences.

The criminal settlement is not subject to the Restore Act, which directs that 80 percent of civil penalties paid by BP should go to the gulf coast states. But Holder said that more than half the proceeds would directly benefit the gulf coast region.

“Eleven Americans died. Then BP lied to the American people. And then they tried to cover it up,” said Rep. Edward J. Markey (Mass.), the senior Democrat on the Natural Resources Committee. “BP deserves this record-breaking penalty.”

Kaluza and Vidrine, the two BP rig supervisors, could serve up to 10 years in prison for each seaman’s manslaughter count and eight for each involuntary manslaughter count. But it is unusual for anyone to go to prison because of a spill. Joseph Hazelwood, the inebriated captain who ran the Exxon Valdez tanker aground in 1989, was found not guilty of operating a vessel while under the influence of alcohol by a jury in Alaska. He was fined $50,000 and sentenced to community service for the negligent discharge of oil, a misdemeanor.

It was unclear whether BP’s plea would curtail its ability to bid on contracts to supply fuel to the U.S. military. BP has been a major Pentagon supplier. But analysts expect that it will not impair the company’s ability to bid for leases and explore in the Gulf of Mexico. BP has a huge stake in the United States, where it has 23,000 employees and makes 40 percent of its investments. The company said that it “has not been advised of the intention of any federal agency to suspend or debar the company in connection with this plea agreement.”

Under the terms of the plea agreement, BP has also agreed to further “enhance” the safety of drilling operations in the Gulf of Mexico. These steps relate to BP’s risk management, including third-party auditing and verification, training, cementing and well-control equipment such as blowout preventers. In addition, BP has agreed to work with academics and regulators to develop new safety technologies for deepwater drilling.

The agreement also provides for the four-year appointment of two monitors, one for process safety in the Gulf of Mexico and one for ethics. Both would report to regulators and the court.

On Thursday, Rep. Peter Welch (D-Vt.) introduced legislation to close a tax loophole allowing corporations to write off punitive damages. In 2005, Exxon Mobil saved $200 million by deducting punitive damages paid for the Exxon Valdez oil spill.

In an interview, Welch said, “It really goes to the question, should the wrongdoer pay the fine, or should the taxpayer help foot the bill?”

Breuer said that “nothing in the criminal settlement is tax deductible.” He said the settlement was “very explicit” about that.

So far, BP has spent $14 billion responding to and cleaning up the spill. It has also paid $9 billion, mostly to individuals and businesses. Additional private civil claims are being pursued in a separate lawsuit in a New Orleans federal court, where a settlement that BP estimates will cost $7.8 billion is being finalized.

The BP settlement with the Justice Department is not expected to cover other companies involved in the April 20, 2010, accident, including rig owner and operator TransOcean and cement contractor Halliburton.

Juliet Eilperin contributed to this report.

Steven Mufson covers energy and other financial news.
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