With Criminal Charges for Oil Spill, Costs to BP Could Soar


As BP watches its bill rise quickly for the oil spill, including $20 billion it is setting aside for claims, it could find the tally growing much faster in coming months if the United States Department of Justice files criminal charges against the company.

Based on the latest estimates, for example, the daily civil fine for the escaping oil alone could be $280 million. But criminal penalties, if imposed, could cause the costs to balloon still further, said David M. Uhlmann, a law professor at the University of Michigan, who headed the environmental crimes section of the Justice Department from 2000 to 2007.

Others note that such penalties could lead to loss of government contracts.

Even misdemeanor convictions under environmental laws could produce stunningly large fines under general federal criminal statutes, Mr. Uhlmann added. That is because the Alternative Fines Act allows the federal government to request twice the gain or loss associated with an offense if the Justice Department shows that a crime was committed.

Predictions by analysts of the overall cost of the spill to BP, when criminal penalties are included, have been rising. On Wednesday, Pavel Molchanov, an analyst at Raymond James, estimated the total legal cost, including criminal fines, at $62.9 billion, which would dwarf the $20 billion escrow account to be used to pay claims of economic loss.

The agreement to create the fund would not pre-empt people from using the courts to resolve disputes with BP over the spill.

Proving a criminal case beyond misdemeanor crimes under federal environmental laws could be difficult. The standard for proving environmental misdemeanors can be relatively low: merely negligent actions can lead to misdemeanor penalties under the Clean Water Act.

Prosecutors would probably prefer, given the severity of the ecological crisis caused by the spill, to seek tougher penalty charges, Mr. Uhlmann said. But those carry a tougher standard of proof. The government would have to show that the company knew its actions would lead to the gushing well on the ocean floor.

A BP spokesman, Toby Odone, said, “We wouldn’t comment on either current or future legal matters.”

Andrew Ames, a spokesman for the Justice Department, said there was no timeline for the civil or criminal investigations, and that the department was “looking for all possible violations of the law.”

The department is reviewing the actions of all companies involved in the spill, and focusing on several environmental laws in particular, including the Clean Water Act, which carries civil and criminal penalties, and the Oil Pollution Act of 1990.

The Migratory Bird Treaty Act and the Endangered Species Act, which provide penalties for injury and death to wildlife, could come into play, along with “traditional criminal statutes,” Mr. Ames said.

The investigation would almost certainly take into account prior criminal plea agreements from the company, like the guilty plea in the 2005 refinery explosion that killed 15 people in Texas City, Tex.

Prior criminal charges can be used during a trial to support arguments that the Deepwater Horizon disaster is not a unique occurrence, but the result of a corporate culture that lets schedule and budget pressures lead to increases in risk.

Any criminal charges are unlikely to reach up to the executive suite, and would apply to the company as an entity.

Few of the laws under consideration by the Justice Department have felony provisions that would lead to incarceration, and even those require a direct and intentional connection between the defendant and the crime.

Stanley L. Alpert, a former federal prosecutor of environmental crimes, said that even if decisions that might have contributed to the disaster are found to be criminal in nature, they are rarely made by top executives. “It’s likely it was done at a much lower, operational level,” Mr. Alpert said.

Criminal indictments alone could have substantial ripple effects on a company’s fortunes, said Steven L. Schooner, a professor at George Washington University Law School. A company that is indicted risks being blacklisted from future sales contracts with the government under procedures officially known as suspension and debarment.

BP sold $1.6 billion worth of aviation fuel and other products to the military last year, according to the government’s procurement site, usaspending.gov. If a company were given a short-term suspension or debarment, which can last three years, it would not be eligible to get a new contract during that time, Mr. Schooner said.

The point of debarment under the law, he said, is not to punish, but to protect the government from suppliers that do not perform.

Still, he added, “It would not surprise me at all if somebody in the White House decided that we ought to suspend or debar BP just because it will make it look like we’re doing something.”

Many states monitor the federal debarment list, Mr. Schooner said, and so sales to airports, fire departments, school districts and more could be imperiled by a listing. “The trickle-down can often exceed the initial problem,” he said.

Mr. Uhlmann said that if the federal government took an extremely aggressive approach, it might try to argue in court that suspension or debarment should also be applied to the company’s federal drilling and operating licenses — potentially, a devastating blow.

But, he added, it would be a risky tactic that would stretch the definition of the blacklisting process. Even if it were successful, it could stay in place only “as long as the condition giving rise to the violation remained in effect.” If the company overhauled its processes as part of a settlement, he said, the ban would have to be lifted.

State law enforcers, working from state environmental statutes, might step in as well, predicted Tracy D. Hester, who teaches environmental law at the University of Houston Law Center.

“BP may think they are dealing with one big man across the ring,” Mr. Hester said. “The fact is, they are going to have a tag team.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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