For its part in the Deepwater Horizon disaster, BP is facing a multi-billion dollar fine. Whether $17bn or $4bn, it must play a part in discouraging wrongdoing by other corporations in the future.
Much has been written in recent years about the impact of punitive fines on corporations. The wrongdoing of banking and insurance companies both in Europe and the United States has resulted in unprecedented fines.
In 2012 UBS was fined $1.2bn on charges of fraud and bribery for rigging LIBOR rates. But this pales into insignificance compared to the potential fine British Petroleum (BP) is facing in the aftermath of the Deepwater Horizon/Macondo catastrophe. Is the fine, which could be as high as $17bn, intended to punish, deter others or go some considerable way to covering all of the environmental clean-up costs? Is the potential fine too much or too little?
The Deepwater Horizon drilling rig explosion on 20 April 2010 resulted in the deaths of 11 workers and serious injury to 16 others. The explosion caused the Deepwater Horizon to burn and sink, resulting in a massive oil spill and an environmental catastrophe. The long-term impact has still to be properly assessed.
Last September, US district court judge Carl Barbier handed down his ruling that BP was guilty of gross negligence and wilful misconduct. He ruled the company’s reckless behaviour made it subject to fines up to $4,300 a barrel under the Clean Water Act.
The Washington Post reported that: “The ruling could open up the company to fines as much as $18bn. BP has set aside £3.5bn for potential Clean Water Act fines and has noted that in previous oil spill cases, the government and the courts have imposed penalties far lower than the maximum. Nonetheless, the price of BP shares tumbled nearly 6% after the news.”
The 153-page ruling describes repeated instances in which BP took measures to cut costs despite the safety risks.
Judge Barbier did not restrict his finding of fault to BP. He also laid blame at the door of Transocean, the operator of the Deepwater Horizon drilling rig, and Halliburton, the oil exploration service provider. He apportioned 67% of the fault to BP, 30% to Transocean and 3% to Halliburton.
BP’s share price has taken a battering over the past four years. The Deepwater Horizon oil spill resulted in a sharp decline in BP’s share price – some 50% in the two months following the disaster. By June 2010 $100bn had been wiped off the market value of BP shares. BP’s share price still has to recover the ground lost over the past four years. Despite this BP is ranked third on the FTSE100 in terms of market capitalisation. It remains one of the ‘go to’ companies UK pension funds invest in.
The Washington Post reported that there is still some considerable way to go before the long-running legal saga draws to a close. “The question of negligence is the first part of a three-part court case about the fines the government can impose on the London-based oil giant. This part assigns blame. The second part will determine the size of the spill (BP’s estimates are sharply lower than the government’s). And the third part will determine the final amount of the Clean Water Act and punitive fines.”
What is clear from the reports is BP’s intention to appeal the ruling and seek a retrial. Should BP succeed in its legal challenge it could result in a finding of negligence rather than gross negligence and a reduction in the fine from $17bn to some $4bn. To date BP has spent some $27bn on cleaning up the oil spill.
But the question remains: what will be the impact of a multi-billion dollar fine in terms of deterring wrong-doing by other corporations in the future? Can we expect the fine to be purely punitive – making an example of a global corporation that has not only broken the law but has shown the frailty of regulation? The fine, whether $17bn or $4bn, must play a part in discouraging wrongdoing and encouraging greater compliance. Punishment on its own is not a good enough reason for a fine of this size.
Neal Stone is the British Safety Council’s director of policy and communications.
Follow Neal on Twitter: @nealleonstone
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