» Business » Will BP's punishment teach any lesson?

Will BP's punishment teach any lesson?

By Rajni Bakshi
November 20, 2012 16:57 IST
Get Rediff News in your Inbox:

The billion dollar penalty of the kind imposed on BP will not deter risky operations but it will hopefully create an incentive for stricter safety measures writes Rajni Bakshi.

British Petroleum will pay $4.5 billion over the next five years to compensate for the gigantic oil spill at its Deepwater Horizon oil rig in the Gulf of Mexico in 2010. In what is being called the largest criminal settlement in history BP pleaded guilty to 14 criminal counts, including manslaughter, and agreed to pay the fine over the next five years.

In April 2010 an explosion at the rig killed 11 men working on the platform, injured 17 others and caused 4.9 million barrels of crude oil to be released into the sea. It took over three months of failed attempts before the leak was finally capped. This made the incident the worst ever marine oil spill - with disastrous consequences for marine life and the economies of adjoining coastal towns.

Last week's settlement between BP and the United States Justice Department has naturally been welcomed by those engaged in research and recovery efforts in the Gulf of Mexico. For much of the fine will be used to fund eco-system relief operations over decades.

But this settlement has also brought to the fore some deeply problematic and unresolved issues - both about the nature of the corporation and about the future of deep sea drilling and mining.

This settlement assumes that a corporation is a 'person' and therefore can be held criminally liable. Robert Reich, who served as Secretray of Labour under President Bill Clinton, has described this assumption as 'loony'.

In a column last week Reich, who is now a prolific political commentator, wrote that "it defies logic to make BP itself the criminal. Corporations aren't people. They can't know right from wrong. They're incapable of criminal intent. They have no brains. They're legal fictions - pieces of paper filed away in a vault in some bank."

Robert Monks, a Boston based businessman and shareholder activist, has put it quite simply. "The great problem of having corporate citizens is that they aren't like the rest of us. As Baron Thurlow in England is supposed to have said, "They have no soul to save, and they have no body to incarcerate." Monks is also author of a book titled "Corpocracy" which makes a powerful case for restraining the enormous power that corporations have acquired.

Anxiety about the power of corporations has reached a heightened pitch in the USA since a US Supreme Court judgment of 2010 in a case known as Citizen's United v. the Federal Election Commission. In this case the court ruled that corporations are people and thus entitled to the right to freedom of expression, under the First Amendment. Effectively, this has allowed corporations to spend unlimited amounts of money on elections - by claiming that as an extension of freedom of expression.

One argument against punishing corporations as a whole is that those who were really responsible for a mess still get away while innocent people - such as employees and shareholders suffer.

For example, the accounting firm Arthur Andersen went under after being convicted in 2002 on charges of obstructing justice. Certain partners in the firm had destroyed records of the auditing work they did for Enron -- a corporation which was found guilty of large scale fraud. While thousands of workers lost their jobs the senior partners of Arthur Anderson went on to form a new accounting firm.

Similarly, argues Reich, why punish the lower echelons of BP's workers or its shareholders -- who are not responsible for the Deepwater Horizon disaster. The fault, he adds, lies with "the executives who turned a blind eye to safety while in pursuit of their own rising stock options, and who conspired with oil-services giant Halliburton to cut corners on deep water drilling when they knew damn well they were taking risks for the sake of fatter profits….But the Justice Department's criminal settlement with BP gives these top executives a free pass - allowing the public to believe justice has been done."

Since BP's market capitalization is at about $130 billion - some commentators have even speculated about whether the $4.5 billion fine is enough of a deterrent for companies of this scale.

Ensuring justice in such situations is truly a conundrum. Chains of command are horribly complex and complicity in wrong decisions can involve not just the executives of a company but regulators, and in some cases even legislators. At present there is no satisfactory formula for solving this problem.

Meanwhile on the environmental front the news is equally grim. The Deepwater Horizon disaster has not dampened enthusiasm for deep sea drilling - with companies installing more ultra-deep wells that reach several kilometers into the ocean.

In addition there is a burgeoning commercial interest in ocean-bed mining. The Science and Development network recently reported that a bitter dispute has broken out about the environmental safety of the world's first deep-sea mine -located near the coast of Papua New Guinea.

In 2009 the government of Papua New Guinea commissioned an environmental impact assessment which cleared the deep-sea mine. Nautilus, a Toronto based company, therefore planed to mine sediments from underwater hydro-thermal vents that deposit metals such as copper, gold and silver in heavy concentrations.

But now a review by the Deep Sea Mining Campaign has claimed that the earlier environmental clearance was based on unacceptable scientific standards. This is a campaign that is opposing experimental deep sea mining on the bed of the Pacific ocean.

A study by John Luick, a physical oceanographer at the South Australian Research and Development Institute (SARDI), has found that the earlier report is based on "serious omissions and flaws" in data pertaining to the speed and direction of currents at different depths.

These omissions make it impossible to properly assess the potential impacts on humans and fisheries. The government of Papua New Guinea is reportedly in the process of creating a forum where experts from various interested groups can aim to resolve these issues.

Whether it is oil or minerals such mines are driven by the rapid shrinking of sources on accessible terrain. As long as the demand  for these natural resources keeps rising risky technologies will continue to be deployed. The billion dollar penalty of the kind imposed on BP will not deter risky operations but it will hopefully create an incentive for stricter safety measures.

Get Rediff News in your Inbox:
Rajni Bakshi

Moneywiz Live!