BP vs the US Criminal Justice System

The legal battle that will determine whether BP (LON:BP.) survives has only just begun. The result will hinge on whether someone or more than someone, employed directly or indirectly by BP in the drilling operation prior to the blow-out did something that was “negligent”, or “reckless”, or not done strictly in accordance with the approved safety procedures and the myriad of regulations mandated by this or that agency.That sounds like a replay of the credit crunch. Then there were laws, lots of laws and yet there was an unmitigated disaster.

In any case if Exxon's (NYSE:XON) Valdez experience is any guide, it could take a while…like twenty years. But that’s better than India, over there they only just handed down verdicts on the 1984 Bophal disaster, here’s a report from last week:

Seven former senior employees of Union Carbide’s Indian subsidiary were convicted today of “death by negligence” for their roles in the Bhopal gas tragedy which killed an estimated 15,000 people.

The way the maximum sentence was seven years in prison, and hardly any of the families of the victims ever received compensation. That was thanks to the local laws which mandated the nasty foreign company was forced to buy insurance from a local Indian company which was not obliged to re-insure, and which had a clever clause that meant they didn’t have to pay anyone until it could be proven that there had been no “crime”. 

If no “criminal” negligence can be proven, then under the 1990 Oil Pollution Act the maximum that BP will be liable to pay for “economic damage” will be $75 million. 

You can disperse oil using chemicals but that causes environmental damage and in any case all that does is create clouds of “dispersed” oil droplets under the surface, even though the surface of the water is sparkling “clean”. That’s what all those clouds of oil droplets below the surface that are drifting into the Gulf Stream are all about, BP was very smart they started spraying dispersants at the source, so the oild never reached the surface. That doesn’t mean it’s not there, just it’s a whole lot harder to spot.

With regard to the rest, the Exxon trials lasted twenty years and the verdict relied mainly on the fact that the captain was drunk and of course, Exxon should not have employed a captain who was a drunk.  Is there an angle lurking that a clever legal team could use? One word spoken in jest on the thousands of hours of recorded transmissions might make all the difference.  The race is on to find the golden sound-bite.

If that fails, there is always the fall-back of the alleged “culture of blatant disregard of safety”, that means all of BP’s past crimes will be sifted through and paraded in the worst possible light so they can be “taken into consideration”.  But that will all be academic if Democratic Sen. Robert Menendez’s bill to retroactively raise the liability limit for impacts like lost wages or dwindling tourism to $10 billion;  passes into law.

The cost of economic damage can be roughly calculated from the past records of the turnover of affected industries, although there is an element of “art” in that. But economic value of ecological damage is something else, there you just think of a number; who knows the “economic-cost” of making some species of toad extinct, who can prove that clouds of dispersed oil droplets poisoned spawning ground, or even that the oil that mysteriously surfaced, or was deposited a thousand miles from the “event”, was that cause?   If “recklessness”, or “negligence” can be proved the potential “number” is potentially infinite. That’s why BP has lost more than $50 billion off its market cap since the blow-out.

But all of that pales into insignificance when compared to another sort of economic damage, which is far more pervasive than either the direct economic damage (from the affected fishermen and the supply-chain that is supported by them), and the tourism industry.  That is how much Americans pay for “safety”.

Safety is a huge business in the developed world, particularly America. When President Bush was elected all he could talk about was a Star Wars Super-Missile defence system that would have cost at least a trillion dollars, and would, according to him, have “keept America safe”.  That plan was shelved after the 9/11 attack which would still have been “successful” (to the perpetrators), even after the trillion dollars on Star Wars had been spent. But no worries, Bush got his trillion dollars and counting to “punish” the perpetrators, or more to the point, the “known associates” of the perpetrators, like the 350,000 women and children that the Lancet says died in Iraq. Although whether on not Americans are sleeping sounder in their beds after that delicious extravaganza of Rambo Revenge; is debatable. If they are not, then the money was wasted.

The American system of law relies on the idea of crime and punishment. It is moral hazard on speed…”if you can’t do the time don’t do the crime”; punishment not prevention is what creates “order”. That’s why USA has the largest prison population of  any developed nation, thanks in part to the “War on Drugs”, where the crime is to take drugs because that might make you a less “orderly” member of society. Plus three-strikes and you’re out; plus the one of the highest rates of execution per capita in any developed country, comparable with the rate in China and Saudi Arabia. Does that prove Americans, in general, are more “criminal” than other people?  Moral hazard is all very well in principle but it can have “unintended” consequences. The first is that “safety rules” piled on top of more safety rules costs an extraordinary amount of money. 

One of the reasons that Americans pay much more for drugs and for medical treatment than anyone else in the world pays for the same drugs and the same procedures, are the “safety” rules that are supposed to provide a superior level of protection to Americans, with the emphasis placed always of retroactively finding the “criminal”, and “punishing” him (and sometimes her), by putting a big hand in their pocket, and the pockets of any “known associates”. 

As if the workers on the Horizon rig deliberately and criminally blew it (and themselves) up.  Under the normal definition of a “crime”, a worker would have deliberately sabotaged the blow-out preventer and the cementation job. But would that have been the responsibility of BP?  Or perhaps an executive in BP gave an order that he knew would have caused the rig to blow up. But there again, the Tool-pusher and the captain of the rig had a legal responsibility to refuse to action any order that they considered might jeopardize the crew? 

The way that oil-field work is administered in USA is different from in the North Sea. In USA you have volumes and volumes of rules and laws, and if you can persuade the authorities that you comply with them, then you can do what you want. In the North Sea (particularly after the Alpha Bravo disaster), it’s up to the operator to prove to the satisfaction of the authorities that any new procedure is safe. Yet there was plenty of evidence that the approaches to cementation that were commonly used ion the Gulf of Mexico; were not foolproof. Regardless, they conformed to the code and the law. But the authorities carried a “Big Stick”, crime and punishment. That was supposed to be the ultimate guarantor of safety. It wasn’t.

Whether BP is made bankrupt or whether the hoteliers and fishermen in Louisiana and Florida are made bankrupt by the disaster, or both; is academic. America as a whole is going to be paying more for oil in the future, regardless of what happens, and regardless of who, if anyone goes to jail, that won’t change.

There are other ways to handle the unforseen (but not totally unexpected) consequences of dangerous jobs. It’s exactly the same principle from doing medicine (dangerous for the customers), to driving cars (dangerous for Toyota), writing mortgages (dangerous for banks), building nuclear power station (stalled in USA for twenty years because of safety concerns), to drilling oil wells.  The first is to create a blame-free co-operation between the authorities and the industry that looks further than how to identify and punish a “perpetrator” in the case of an accident.  The second is to mandate contingency plans for “worst-case”. 

One lesson learned from the BP spill is that the company was completely unprepared to deal with a disaster of this magnitude. Absolutely no thought had been given to what would need to be done, if there was an uncontrolled leak 5,000 feet under-water. The capping device that is now in place had not even been thought about on the day the rig blew up, yet it’s pretty obvious that one solution if the BOP fails is to cut off the riser and place a cap. Why wasn’t that device, engineered properly (BP say they are coming up with a better model), on standby and in place? It’s not as if this is the first time an oil well has blown. Just because it was 5,000 ft below the surface did not make it “special”.  

Insofar as the spill is concerned, there are plenty of skimmers that can operate in eight-ft waves that could have, if deployed in sufficient numbers, have skimmed off the oil from the surface (i.e. without relying on dispersants which essentially just hide the problem under-water).  Why were one hundred of those devices not deployed on standby within three days sailing along with tenders plus if necessary inflating bags to temporarily hold the oil. Those “mothers” can pick up 5,000 barrels of oil a day; and they can be dragged around using a GPS mandated routing controlled from the air. In a word they were not built.

http://www.theepochtimes.com/n2/content/view/36395/

Although to be fair there were some skimmers (less effective than the ones not built) available in Holland, UK, and Norway, and they were offered. But the offer of help was rejected by both the Obama Administration (on a government to government level), and by BP.

http://mayrantandrave.com/2010/06/09/obama-administration-and-bp-turned-down-dutch-oil-skimmers-on-day-3/

It’s hard to imagine why the Obama administration refused assistance; it’s almost as if they wanted the situation to become worse. Or perhaps it was because of the Jacobs Law which mandates that all of the oil-service vessels operating in the Gulf of Mexico; must have been made in America. 

http://commonsensewonder.blogspot.com/2010/06/it-wasnt-bp-that-was-slow-to-accept-it.html