BP's $4 Billion in Fines and Penalties Should Be Red Flag to Oil Industry

Fire boats battle the blaze caused by the BP oil rig explosion. (Photo: U.S. Coast Guard)
Issue: Dodd-Frank
Country: United States
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Today, the Department of Justice announced BP will plead guilty to 14 criminal charges stemming from the 2010 Deepwater Horizon oil spill and agreed to pay $4 billion, a historic sum, in penalties and fines.

Notably, the oil company will pay an additional $525 million to the Securities and Exchange Commission (SEC) to settle charges that it "misled investors by misrepresenting and omitting material information" about the rate at which oil was flowing into the gulf. Robert Khuzami, Director of the SEC's Division of Enforcement, said in a statement:

The oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency—its own shareholders and the investing public who are entitled to transparency, accuracy and completeness of company information, particularly in times of crisis. Good corporate citizenship and responsible crisis management means that a company can’t hide critical information simply because it fears the backlash.

Exactly. Which brings us to the oil industry's lawsuit against the SEC challenging the commission's rules to enforce Section 1504 of the Dodd-Frank Act. Section 1504 requires oil, gas and mining companies listed on U.S. stock exchanges to disclose the payments they make to governments, wherever they operate and for each project. Led by lobbyists at the American Petroleum Institute (API)—of which BP is a member—the oil companies make outrageous claims that complying with Dodd-Frank will harm competitiveness and be terribly expensive.

To understand just how ridiculous the cost claim is, the SEC estimated that the initial costs to comply with Section 1504 would run a large company like BP anywhere from $90,000 to $1 million. When you compare that figure to oil companies' annual revenues (use our cool interactive chart, Oil v. World) you'll see just how ill-founded that argument is. (RWI's Rebecca Morse handily refutes API's claims in this blog post.)

Wisely, when API asked the SEC to hold off on enforcing Dodd-Frank while the case makes its way through the courts, the SEC refused, declaring the law "would help empower citizens to hold their governments to account for the decisions made by their governments in the management of valuable oil, gas, and mineral resources and revenues" and that staying the rules would not "serve the public interest."

Even more notably, in the bipartisan congressional report released in January 2011 after an exhaustive investigation of the Deepwater Horizon oil spill, the authors note:

Because they would make oil and gas industry operations potentially more costly, API regularly resists agency rulemakings that government regulators believe would make those operations safer, and API favors rulemaking that promotes industry autonomy from government oversight.

The report also notes that API also led the charge to convince the federal agency charged with regulating the oil industry to simply rely on "voluntary, recommended safety practices" instead of creating actual, required regulations.

We now see how well that "voluntary" approach worked—an approach API would also prefer to apply in the arena of financial disclosure, in lieu of complying with U.S. law and the reporting requirements laid out in Dodd-Frank’s Section 1504.

This isn't over for BP, not by a long shot. It still faces mountains of charges and therefore more penalties and fines. And it's now been proven that the egregious harm caused by this catastrophe could well have been mitigated if some very basic reporting had been done, and BP had been held to a higher regulatory standard. When oil companies cry that Dodd-Frank’s new reporting rules will be onerous and costly, remember the environmental havoc from nearly 5 million gallons of oil in the gulf, 11 deceased oil rig workers, a decimated fishing industry and the many lives and communities hurt by the spill. In this sobering light, $1 million to report some company data doesn't seem like much.

Suzanne Ito blogs for RWI.

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