Corporate Crime

Stealth Disclosure

The Congressional practice of quietly attaching an unrelated provision to a larger piece of legislation at the last minute has all too often been used to benefit powerful corporate interests. In two recent cases, however, the stealth amendment process has resulted in changes that will make it easier to monitor questionable business practices by energy companies and federal contractors.

Extractive industries are complaining about language (Section 1504) slipped into the new financial reform bill that will require them to report on royalties and other payments to governments. The aim is to make it harder for those corporations to conceal bribes and other illegal transfers used to obtain petroleum or mining concessions and that often prop up corrupt regimes such as the one in Equatorial Guinea. The provision, based on a bill that had been introduced by Senators Benjamin Cardin of Maryland and Richard Lugar of Indiana, applies to publicly traded oil, gas and mining companies whose shares trade in the United States.

The law is a victory for groups such as Publish What You Pay, which has long campaigned to increase the transparency of energy corporation dealings with governments around the world. The campaign has already succeeded in getting some firms to disclose the information voluntarily, but it will be much better to have it mandated and overseen by the Securities and Exchange Commission, which will write rules covering the inclusion of the information in financial statements.

That’s why trade associations such as the American Petroleum Institute and companies such as Exxon Mobil are grousing about the law. An API spokesperson told the Wall Street Journal that Russian and Chinese oil companies not subject to the requirement “could use the data to outfox U.S. companies in deals.”

Dubious complaints are also being heard from Beltway Bandit mouthpieces in response to a swift move by Sen. Bernie Sanders of Vermont to insert a provision in the recently passed supplemental appropriations bill giving the public access to a database about contractor performance – which in many cases means contractor misconduct.

The database is the Federal Awardee Performance and Integrity Information System (FAPIIS), which was mandated as a result of 2008 legislation enacted thanks to the efforts of groups such as the Project On Government Oversight (POGO), which has its own Federal Contractor Misconduct Database covering the 100 companies doing the most business with Uncle Sam. FAPIIS is supposed to make it easier for federal agencies to review the track record of a much wider range of companies bidding on new contracts worth $500,000 or more. In addition to contract performance information collected from various federal sources, FASPIIS includes data submitted by companies with more than $10 million in contracts or grants on any criminal, civil or administrative proceedings brought against them during the previous three years.

FAPIIS was an important step forward, but it was able to get through Congress only after its sponsors agreed to restrict access to the database. POGO tested the provision by filing a FOIA request with the Pentagon for its FAPIIS information but was shot down.

A short time later, however, it came to light that the Sanders amendment survived in the supplemental spending bill President Obama signed on July 29. The provision will give the public access to FAPIIS information about contractor track records, but unfortunately it excludes past contract performance reviews by federal agencies.

Already, the Professional Services Council, the leading trade association of federal contractors, is warning that making parts of FAPIIS public “could create a politically motivated blacklist of vendors.” The PSC seems to believe that the public should not have the ability to pressure the federal government to stop doing business with crooked companies.

Speaking of blacklists, the FAPIIS change comes on the heels of an announcement by the Obama Administration that it is creating a master Do Not Pay database covering individuals and businesses that should not be receiving payments from federal agencies. At a time of growing hysteria about the federal deficit, it is good to see that attention is being paid to ways of cutting costs that are truly wasteful.

Obama’s Oil Magic

BP has been selling off small pieces of itself to help pay for its liability costs in the Gulf of Mexico. Here’s another way it can economize: eliminate its public relations staffers and outside consultants such as the well-connected Podesta Group. The oil giant doesn’t need them any longer, now that the Obama Administration has taken over responsibility for burnishing the image of the beleaguered oil giant.

BP’s new mouthpieces include Carol Browner, whose official title is Director of the White House Office of Energy and Climate Change Policy, and Jane Lubchenco, head of the National Oceanic and Atmospheric Administration. Browner has taken to the airwaves to deliver the mind-boggling message that the BP mess — which had just been declared by federal scientists to be the largest oil spill in history — has largely disappeared: “The vast majority of the oil is gone,” she told NBC’s Matt Lauer. “It was captured. It was skimmed. It was burned. It was contained. Mother Nature did her part.”

Lubchenco presided over the preparation of a five-page report claiming that one-quarter of the 200 million gallons of crude released from BP’s Macondo well “naturally evaporated or dissolved”; another quarter was dispersed “naturally” or chemically; and a third quarter was either directly recovered, burned off or skimmed from the surface, leaving a “residual” of 26 percent, among which is whatever BP collects from the shore.

In other words: Abracadabra, the oil is gone.

If BP had tried this kind of magic trick, it would have been laughed off the stage. The administration, exploiting the legitimacy of NOAA and Browner, a former head of the Environmental Protection Agency, is being taken (somewhat) seriously. In doing so, it is acting as a sort of front group for BP, giving more credence to the company’s claims of having carried out an effective clean-up operation. The remarkable claims about evaporation and dissolution could also help to reduce BP’s ultimate liability costs.

At the same time, the White House is clearly trying to protect itself. The NOAA report can be seen as a justification for the administration’s capitulation to BP on the issue of chemical dispersants. Only a few days before the announcement of the NOAA calculations, the House Select Committee on Energy Independence and Global Warming had released documents showing that the Coast Guard had repeatedly approved BP requests to apply large quantities of Corexit, despite EPA’s claim to have ordered the company to restrict its use of the controversial chemicals.

It is difficult to avoid the impression that BP and the administration have conspired to disguise the full extent of the disaster through the use of the dispersant, which reduces the amount of sludge arriving on shore but is having as yet unknown effects on the ecology of the gulf. The White House is so compromised in this situation that it seems unable to recognize the dissonance between the President’s statement that this is the “worst environmental disaster America has ever faced” and the new message, which is essentially “don’t worry, be happy.”

The positive spin is giving ammunition to figures such as Rush Limbaugh, who have been claiming for some time that the impact of the BP spill has been exaggerated. By encouraging these disaster deniers, the administration is undermining the rationale for continuing the deepwater drilling moratorium and even for the transformation of the former Minerals Management Service into a real regulatory watchdog.

If spills — including gigantic ones such as BP’s — can be brought under control so easily with dispersants and Mother Nature, why bother to restrict offshore drilling? After an incident that should have discredited that activity once and for all, the Obama Administration has in effect paved the way for a return to “Drill, Baby, Drill.” Quite a magic trick.

The Right Way to Cut Federal Spending

Resembling a scene from Alfred Hitchcock’s The Birds, deficit hawks are taking over Washington. They held up an extension of unemployment benefits and are poised to attack Social Security, Medicare and other supposedly out-of-control forms of federal spending. At a time when government outlays, at least those of the safety net variety, should be expanding to address the ongoing economic crisis, Republicans and many Democrats alike have bought into the dubious idea that now is a time for fiscal austerity.

Apart from the battle over entitlements, there is more sensible effort under way to cut spending that benefits those who need it the least: large corporations. One welcome side effect of the Gulf of Mexico oil disaster is that increased attention is being paid to the ways that federal policies reward the likes of BP, Exxon Mobil, Chevron, Shell and ConocoPhillips. On the Fourth of July, the New York Times devoted part of its front page to a story on this largesse, writing: “oil production is among the most heavily subsidized businesses, with tax breaks at virtually every stage of the exploration and extraction process.”

According to a detailed analysis prepared by the Texas Comptroller of Public Accounts in 2008, total federal subsidies to the oil and gas industry in 2006 were about $3.5 billion. The Times article puts the current cost at about $4 billion. A recent Citizens for Tax Justice report points out that these tax breaks do little to benefit the public and serve mainly to fatten profits and enrich investors.

Efforts to eliminate these subsidies—including one pursued last month by Vermont Sen. Bernie Sanders—have generally come to naught, given the petroleum industry’s formidable influence in Congress. One of the more persistent initiatives is Green Scissors, a 15-year-old project that targets subsidies not only to the energy sector but also to agribusiness, mining and highways — challenging them on environmental as well as fiscal grounds. The Green Scissors 2010 report – just issued by Friends of the Earth, Taxpayers for Common Sense, Environment America and Public Citizen – tallies more than $31 billion in oil and gas subsidies that could be cut over the next five years. The total Green Scissors hit-list amounts to more than $200 billion for that period, with much of the remainder coming from subsidies to other energy sectors such as coal, nuclear and biofuels.

Attacking these costly and harmful subsidies is a noble endeavor, but it may be more effective not to take on the entire energy industry at once. Another significant feature of the Gulf of Mexico disaster is the breakdown of corporate solidarity. BP’s major rivals have taken pains to distance themselves from the British company, implicitly depicting it as a renegade on safety matters. Four of them just formed a rapid-response force to deal with future spills without involving BP in the planning.

In this context, it might make sense to focus on making certain companies, beginning with BP, ineligible for all or part of the federal energy subsidy banquet. Until now, the tax breaks and other benefits have been treated as entitlements, there for the taking by any company involved in certain activities.

Why not modify the Internal Revenue Code so that the subsidies are not available to companies with a poor safety or environmental record, especially those like BP that have paid criminal fines for violations in those areas? The federal government has an Excluded Parties List (albeit underused) for contractors that have been barred from doing business with Uncle Sam. Shouldn’t there be a similar list for subsidy recipients?

Even better would be the creation of good-behavior criteria for receiving those subsidies in the first place. If corporations were required to have a record free of significant violations of regulations relating to the environment, occupational safety and health, employment practices, antitrust, etc., then there would probably be a lot fewer recipients and it might be easier to do away with these giveaways once and for all.

A Business Backlash?

By all rights, the laissez-faire crowd should be silent these days. Recent months have been marked by one example after another of the perils of deregulation and the folly of trusting large corporations to do the right thing. From Toyota to Goldman Sachs to Massey Energy to BP, 2010 has been the year of big business irresponsibility.

As in 2002 (after the accounting scandals involving Enron, WorldCom et al.) and 2008 (the meltdown of Wall Street), we’re now at one of those moments, following an outbreak of corporate misconduct, in which public sentiment about business is up for grabs, as is public policy.

The business camp is already working hard to regain support, in ways ranging from BP’s seemingly benign vow to “make things right” to Rep. Joe Barton’s shameless “shakedown” outburst designed to turn the Obama Administration into the villain. Here are some other signs that corporations and their defenders are already going back on the offensive:

A federal judge with personal investments in the petroleum industry struck down the Obama Administration’s moratorium on deepwater drilling, despite evidence brought to light by Congressional investigators that the practice is much more dangerous than we had been led to believe and none of the oil giants have adequate accident response plans. The challenge to the moratorium had been brought by smaller oil service firms, but the judge’s decision was hailed by majors such as Chevron and Royal Dutch Shell.
Massey Energy, apparently hoping for a like-minded judge, has filed suit against the federal Mine Safety and Health Administration in a brazen effort to pin the blame on regulators for the April explosion at the Upper Big Branch mine in West Virginia that killed 29 workers.
Verizon Communications CEO Ivan Seidenberg, the current head of the Business Roundtable, recently gave a speech in which he challenged regulatory initiatives in the telecom and financial sectors, criticized efforts to limit tax avoidance by multinational companies, and declared: “It’s time for us all to raise our game and embrace the power of the private sector that will create real value and real growth for our country.”

If business advocates are emboldened to speak out so soon, that suggests that corporations have not been reprimanded adequately for their misconduct. The criticism expressed by the Obama Administration and Congressional Democrats has had a ritualistic quality about it—a Kabuki dance of disapproval that may not result in any real change.

Even the $20 billion BP escrow fund feels inadequate, given the fact that there is no end in sight to the disaster. Although BP’s shareholders are agonizing over the suspension of the dividend payment, the company itself does not seem very put out by the creation of the fund, especially since it is being allowed to spread out the cost over several years.

The ability of BP to buy its way out of the crisis contributes to the sense that large corporations can do the most outrageous things and emerge relatively unscathed. It is unlikely that the forthcoming criminal case against the company will cause much more discomfort. The company has already been through that process with previous disasters involving oil spills in Alaska and a deadly refinery explosion in Texas. It paid the resulting penalties with no problem, and the fact that it was put on probation has had little practical effect.

What’s needed is a more dramatic response to corporate negligence. It might be the arrest of a top executive or an announcement that the federal government will no longer do business with companies with serious regulatory violations or an antitrust initiative to try to break up large firms which think that their size somehow makes them above the law. Only then might corporations think twice about lashing back and returning to business as usual.

There Will Be Damage

Twenty billion dollars. The amount BP agreed to put in escrow is more than 250 times the company’s maximum obligation under the Oil Pollution Act of 1990. It is a remarkable sum to get a corporation to disgorge before there has been any formal finding of guilt. But is it enough?

While it is commendable that the people of the Gulf Coast will be guaranteed compensation, there is a risk that BP’s voluntary participation in the fund will allow it to avoid what should be even higher liability costs. The Obama Administration insists that the $20 billion is not a cap, yet that is how it seems to be viewed by many in the financial markets, which reacted to the announcement with a degree of relief.

Obama is so eager for a win that he may have left money on the table. The fact that BP agreed to the $20 billion figure without much of a fight suggests that he could have gotten more. Another drawback: keeping the amount within BP’s comfort zone allowed the company to appear to be noble in cooperating, when it would have been preferable to see it squealing about an “unreasonable” demand. BP should be feeling more pain.

I also worry that BP’s acquiescence might cause the feds to go easier on the company in the criminal investigation of the gulf disaster. BP is already on probation in connection with criminal charges stemming from its previous recklessness in Alaska and at its Texas City refinery. Another conviction should get it debarred from receiving new drilling licenses or contracts from the federal government, and it would pave the way to huge payouts in the inevitable civil litigation.

The $20 billion deal is also less than fully satisfying because it applies to BP alone. The current mess in the gulf may be the doing of BP (and perhaps Transocean and Halliburton), but the Congressional testimony just given by top executives raises new concerns about other deepwater wells.

Corporate solidarity fell by the wayside as the big shots from Exxon Mobil, Chevron, Shell and ConocoPhillips distanced themselves from BP. Rex Tillerson of Exxon Mobil was especially blunt about BP’s screw-ups, seeking perhaps to drive down the company’s stock price further and facilitate a rumored takeover bid.

Yet what was even more amazing was the admission by the executives that, four decades after the 1969 Santa Barbara accident that demonstrated the risks of offshore drilling, their companies are still not in a position to handle such occurrences. “We are not well-equipped to deal with them,” Tillerson said matter-of-factly. “There will be damage.” This came on top of revelations by the House Energy and Commerce Committee that the spill response plans of the oil majors were cookie-cutter documents with outdated and irrelevant information.

All this is a far cry from the rosy scenarios and confident assurances that the industry has been peddling to the public for decades and selling to gullible (or indifferent) federal regulators. Here was the chief executive of the world’s largest oil corporation in effect admitting that it is helpless when something big goes wrong at one of its wells beneath the sea.

As satisfying as is to beat up on BP for the current catastrophe, the culpability extends to the entire industry. None of the oil giants took safety seriously, and by all rights they should all be digging into their corporate pockets to clean up the mess and compensate the people of the Gulf Coast.

One hundred billion dollars: that has a better ring to it.

Would a Defunct BP Make Good On Its Liabilities?

The BP deathwatch has begun. It’s not trial lawyers or environmental activists who pose an immediate threat to the continued existence of the oil giant, but rather the market. BP’s stock price is down about 50 percent since the beginning of the Gulf of Mexico disaster — a loss of more than $80 billion in capitalization — and there is rising speculation about a takeover by another petroleum behemoth such as Shell or Exxon Mobil.

The demise of a company with a track record as sullied as that of BP is no cause for mourning, but there is a serious risk that its dismantling would be done in a way that limits the resources available for cleanup and compensation in the gulf. Mainstream analysts such as those at Credit Suisse now estimate the company’s total liability at more than $35 billion. As the damaged underwater well continues to spew oil — and more indications of BP’s negligence come to light — the final dimensions of the financial blowout are likely to be much larger. BP’s current or future owners are not likely to part with that kind of money without a fight.

One maneuver they might consider is to break up the company. The New York Times is reporting that investment bankers are already working on scenarios in which BP would submit a prepackaged bankruptcy filing and split off a separate entity that would be saddled with the liabilities and given limited assets to make good on them.

Such attempts to shield assets from massive environmental liabilities are not unprecedented. In the 1980s Johns-Manville, the world’s leading producer of asbestos, restructured itself, changed its name, and then filed for bankruptcy in the face of more than 16,000 lawsuits brought by victims of asbestos disease. Mining company Asarco was accused of using a 2005 Chapter 11 filing to reduce its financial responsibility for cleaning up nearly 100 Superfund toxic waste sites.

There are also troublesome precedents that don’t involve bankruptcy filings. After taking over Union Carbide, the company responsible for the 1984 industrial accident in Bhopal, India that killed thousands, Dow Chemical disavowed any liability. After being hit with $5 billion in punitive damages in connection with the Exxon Valdez oil spill, Exxon resisted paying for more than a decade and was finally rewarded when the U.S. Supreme Court slashed the judgment.

What, then, needs to be done to prevent BP from evading its full obligations related to the present disaster? The ideal course of action would be for the federal government to seize enough of the company’s assets in the United States to cover its expected obligations. This is what the Seize BP movement is already demanding.

Such an aggressive action would probably run afoul of Supreme Court rulings such as the 1952 decision regarding President Truman’s seizure of steel mills during a strike by steelworkers. On the other hand, the government could use the fact that BP is on probation in connection with criminal charges relating to workplace safety and environmental violations in Texas and Alaska to justify a seizure. The likelihood that BP has violated laws in connection with the gulf disaster is quite high, meaning that it is technically in violation of its probation. A seizure of its property would be the equivalent of arresting an individual who violates probation.

Another alternative would be not to seize assets but to force the company to pledge enough of them to cover likely liabilities. If BP was later unable or unwilling to pay what the courts or government agencies mandate — a possibility that is more likely in light of the fact that the company is self-insured — those assets could then be taken.

It turns out that BP and other companies drilling for oil on U.S. public lands or offshore already have to make a commitment of the sort by posting bonds with the Interior Department. The bonds are meant to cover reclamation of the site after the drilling is completed; i.e., returning it to some approximation of its original condition, which in the case of offshore wells includes the removal of the drilling platform. According to a GAO report published earlier this year, the bond requirements are quite low and in some cases have not changed in decades. A company such as BP is required to post only $3 million for all of its drilling activities in the Gulf of Mexico.

The Oil Pollution Act of 1990 also requires that companies provide proof — whether in the form of insurance coverage or a bond — that they can meet their financial obligations relating to a spill, but as has been widely discussed, the liability limits mandated by the act are grossly inadequate.

The current catastrophe in the gulf demonstrates that the potential liabilities from an offshore drilling accident, especially the deepwater variety, are enormous. At the very least, the federal government should vastly increase the bonding requirements — or other ways of reserving assets — beginning immediately and including BP. Knowing that a substantial portion of their resources are immediately at risk might make oil companies think twice about employing reckless drilling practices.

BP’s Partner in Crime

The liability costs stemming from the ongoing environmental disaster in the Gulf of Mexico are likely to be in the tens of billions of dollars. BP, of course, will bear the brunt of those costs, but other deep pockets should not be ignored. Transocean, the owner of the rig where the initial explosion occurred, and Halliburton, which was supposed to seal the well with concrete, will both be targeted.

But we shouldn’t forget that BP is not the sole owner of the underground well, known as Macondo, that continues to spew large quantities of crude oil into the sea. The biggest minority holder, with a 25 percent share, is Anadarko Petroleum, which is a major offshore driller in its own right and has ties to major controversies in the energy industry. The company is worth a closer look.

Anadarko was formed in 1959 as a subsidiary of Panhandle Eastern Pipe Line Company, which used the entity to get around Federal Power Commission limitations on the price it could charge on natural gas produced from properties it owned in the Anadarko Basin in Texas, Oklahoma and Kansas. Anadarko got involved in offshore exploration in 1970. Among its early project partners was Amoco, which would later (1998) be acquired by BP.

By the 1990s Anadarko was a major player in the Gulf of Mexico. During the following decade the company became better known (and much larger) after acquiring Union Pacific Resources and then Kerr-McGee, which had pioneered offshore petroleum exploration in the late 1940s. The latter acquisition, in particular, saddled Anadarko with a dubious legacy.

In the 1970s Kerr-McGee was embroiled in a scandal over accusations of serious safety violations and falsification of records at its nuclear fuel plant in Oklahoma. The controversy escalated after the whistleblower in the case, technician and union activist Karen Silkwood, died under suspicious circumstances in 1974. Silkwood’s family sued the company for causing her to be contaminated with plutonium. In 1986 Kerr-McGee paid $1.38 million to settle the case after a jury award of $10.5 million had been overturned on appeal.

Two decades later, Kerr-McGee mounted a court battle to prevent the federal government’s Minerals Management Service from restoring royalty rates paid by offshore drillers to reasonable rates after they had been reduced by Congress when energy prices were low in the mid-1990s. The case, which was resolved after Anadarko completed its acquisition of Kerr-McGee, could cost U.S. taxpayers, according to a Government Accountability Office estimate, more than $50 billion.

While Kerr-McGee was pursuing its case it was also defending itself against a whistleblower suit charging that the company had cheated the federal government out of millions of dollars in offshore drilling royalties by underreporting its output. In January 2007 a federal jury found the company guilty, but the judge in the case later overturned the verdict on a technicality.

Anadarko’s own record is not unblemished. Last year it and two related companies paid $1.05 million in civil penalties and agreed to spend $8 million in remedial actions to resolve charges that they violated the Clean Water Act by discharging harmful quantities of oil from a production facility in Wyoming. Two years earlier the company was fined $157,500 by the EPA for destroying wetlands in southwest Wyoming. Anadarko is also heavily involved in natural gas drilling in the Marcellus Shale in the northeastern United States, which is viewed as a serious threat to drinking water supplies. Its joint venture partner in the shale operations is Mitsui, which is also the third partner (with a 10 percent stake) in the Macondo well.

Anadarko does not appear to have had any role in operational decisions at that ill-fated Macondo well, but the company is separately involved in its own deepwater drilling activities in the Gulf of Mexico that were temporarily shut down as a result of the moratorium announced by President Obama. While BP rightfully remains the primary target of legal and other responses to the gulf disaster, Anadarko – both by virtue of its ownership interest in Macondo and its own risky drilling – also deserves to feel some of that pain.

Federalize BP

President Obama’s declaration that the federal government is in charge of the response to the oil disaster in the Gulf of Mexico is apparently meant to deflect Katrina comparisons and show that his administration is fully engaged. With that p.r. mission accomplished, Obama now needs to turn to the question of what to do about BP.

As a helpful Congressional Research Service report points out, the Oil Pollution Act of 1990 gives the federal government three options: monitor the efforts of the spiller, direct the efforts of the spiller, or do the clean-up itself. So far, the Obama Administration has followed the second path and resisted growing pressure to “federalize” the response.

This was said to be necessary because the feds do not have the technical expertise to handle a deepwater leak. As Coast Guard Adm. Thad Allen, the National Incident Commander, put it: “To push BP out of the way would raise the question of: Replace them with what.”

The idea that the government is completely dependent on BP to stop the leak is a dismaying thought. But even if it’s true, it no longer applies once the gusher is brought under control. When the center of attention shifts from 9,000 feet below the surface to the clean-up, there is no reason why BP should continue to run things.

The simple fact is that the company cannot be trusted. As Obama himself noted, the company’s interests diverge from those of the public when it comes to assessing the true extent of the damage and deciding what is necessary in the way of remediation. Keep in mind that BP’s total liability will be determined at least in part by the final estimate of how much oil its screw-ups caused to be released into the ocean. It has every incentive to obscure the full magnitude of the catastrophe.

The company’s motivation in employing massive quantities of the controversial chemical Corexit may have had more to do with dispersing evidence of the spill than with helping the ecosystem of the gulf recover. BP had to be pressured to back off from a plan to have clean-up workers sign confidentiality agreements to prevent them from disclosing what they observed. The company resisted making public the live video feed showing the full force of the oil spewing out of the wrecked well and then delayed making a high-definition version of that video available to federal investigators.

For BP, job one is now not clean-up but cover-up. Allowing it to manage the ongoing response would be akin to allowing the prime suspect in a mass murder to assist in processing the crime scene.

Taking operational control of the clean-up away from BP should be a no-brainer, but it is not enough. This is a company that has repeatedly shown itself to be reckless about safety precautions. The gulf disaster comes on the heels of previous incidents—a 2005 explosion at a refinery in Texas that killed 15 workers and a 2006 series of oil spills at its operations in the Alaskan tundra—in connection with which it pleaded guilty to criminal charges and paid large fines. It was also put on probation that has not yet expired.

An individual who violates probation can be deprived of liberty through imprisonment. A giant corporation that violates its probation—as BP undoubtedly has done by breaking various federal and state laws in its actions precipitating the Deepwater Horizon explosion—cannot be put behind bars, but it can be deprived of freedom of action.

Federal sentencing guidelines (p.534) allow probation officers to monitor the finances of a business or other organization under their supervision. In BP’s case, the issue is safety. One way to ensure that the company acts responsibly is to station inspectors inside all of its U.S. operations (at BP’s expense) to oversee any operational decision that could impact the safety of workers and the environment. Those inspectors would also make it harder for the company to cover up the full extent of what it has done to the Gulf Region.

In other words, the Obama Administration should federalize not only the Gulf of Mexico clean-up but BP itself. That would show that the government really is in charge until we can be sure that the oil giant is no longer a public menace.

Punishments that Fit BP’s Crimes

Few things enrage the American public more than hearing about a criminal who is given a light sentence and then commits another offense. This scenario is not limited to murderers and rapists. Corporations can also be recidivists.

We’re currently contending with such a culprit in the (corporate) person of BP. The oil giant’s apparent negligence in connection with the ongoing disaster in the Gulf of Mexico comes on the heels of two previous major accidents in which the company was found culpable: a 2005 explosion at a refinery in Texas that killed 15 workers and a 2006 series of oil spills at its operations in the Alaskan tundra.

Those earlier cases are not just another blot on BP’s blemished track record. In both instances the company was compelled to plead guilty to a criminal charge and not only heavily fined but also put on probation for three years. On a single day in October 2007, the U.S. Justice Department announced these plea agreements along with the resolution of another criminal case in which BP was charged with manipulation of the market for propane. In the latter case, prosecution of BP was deferred on the condition that the company pay penalties of more than $300 million and be subjected to an independent monitor for three years.

In other words, at the time that BP engaged in behavior that contributed to the Gulf catastrophe, it was under the supervision of federal authorities for three different reasons. Although the terms of the probation and independent monitor agreements refer to the parts of BP’s business involved in the offenses, federal law (18 USC Section 3563) requires that “a defendant not commit another Federal, State, or local crime during the term of probation.”

Given the distinct possibility that BP will face new criminal charges, the question arises: what would be a suitable punishment? When an individual violates his or her probation by committing a new offense, the usual result is imprisonment. Federal sentencing guidelines say that when an organizational defendant commits such a violation, the remedy is to extend the period of the probation.

That hardly seems adequate in the case of an egregious repeat offender such as BP. Just as an individual loses certain rights when imprisoned, so should a corporate probation violator face serious consequences. Here are some possibilities:

Ineligibility for federal contracts. BP is among the top 30 federal contractors. That privilege should be suspended.
Ineligibility for federal drilling leases. BP has shown itself to be reckless when it comes to drilling. It should no longer be able to obtain leases to drill on public lands or in public waters.
Ineligibility for federal tax incentives. Like other oil companies, BP receives a variety of special tax advantages such as writeoffs of intangible drilling costs. It should be denied such benefits.
Suspension of the right to lobby. According to the Open Secrets database, BP spent nearly $16 million last year on federal lobbying. As a probation violator, it should be barred from trying to influence public policy.
Moratorium on image-burnishing advertisements. As the Gulf debacle continues, BP is spending heavily on advertising to convey the message that it is doing everything in its power to address the problem. Once it is designated a probation violator, it should be barred from that sort of crisis marketing.
Public admission of fault. At the point that BP pleads guilty to another criminal offense, an appropriate penalty might be to force it to take the money now being spent to repair its image and use it to run ads admitting its misbehavior. Nothing would be more satisfying than hearing BP admit that its purported devotion to corporate social responsibility has been a sham.

No doubt there are legal barriers to such measures, but we need to go beyond the current wrist-slapping approach to the punishment of corporate crime and create deterrents that once and for all get the likes of BP to take safety and environmental regulations seriously.

Corporate Social Irresponsibility

The catastrophic Exxon Valdez oil spill of 1989 gave rise to the modern corporate social responsibility movement; the current spill in the Gulf of Mexico marks its collapse.

The past two decades have been an experiment in corporate behavior modification. An array of well-intentioned organizations such as CERES promoted the idea that large companies could be made to do the right thing by getting them to sign voluntary codes of conduct and adopt other seemingly enlightened policies on environmental and social issues.

At first there was resistance, but big business soon realized the advantages of projecting an ethical image: So much so that corporate social responsibility (known widely as CSR) is now used as a selling point by many firms. Chevron, for example, has an ad campaign with the tagline “Will You Join Us” that is apparently meant to convey the idea that the oil giant is in the vanguard of efforts to save the earth.

What also made CSR appealing to corporations was the recognition that it could serve as a buffer against aggressive regulation. While CSR proponents in the non-profit sector were usually not pursuing a deregulatory agenda, the image of companies’ agreeing to act virtuously conveyed the message that strong government intervention was unnecessary. CSR thus dovetails with the efforts of corporations and their allies to undermine formal oversight of business activities. This is what General Electric was up to when it ran its Ecoimagination ads while lobbying to weaken air pollution rules governing the locomotives it makes.

Recent events put into question the meaning of a commitment to CSR. The company at the center of the Gulf oil disaster, BP, has long promoted itself as being socially responsible. A decade ago it adopted a sunburst logo, acknowledged that global warming was a problem and claimed to be going “beyond petroleum” by investing (modestly) in renewable energy sources. What did all that social responsibility mean if the company could still, as the emerging evidence suggests, cut corners on safety in one of its riskiest activities—deepwater drilling? And how responsible is it for BP to join with rig owner Transocean and contractor Halliburton in pointing fingers at one another in an apparent attempt to diffuse liability?

BP is hardly unique in violating its self-professed “high standards.” This year has also seen the moral implosion of Toyota, another darling of the CSR world. It was only months after the Prius producer was chosen for Ethisphere’s list of “the world’s most ethical companies” that it came to light that Toyota had failed to notify regulators or the public about its defective gas pedals.

Goldman Sachs, widely despised these days for unscrupulous behavior during the financial meltdown, was a CSR pioneer in the investment banking world. In 2005 it was the first Wall Street firm to adopt a comprehensive environmental policy (after being pressured by groups such as Rainforest Action Network), and it established a think tank called the Center for Environmental Markets.

Even Massey Energy, which has remained defiant in the face of charges that a preoccupation with profit over safety led to the deaths of 29 coal miners in a recent explosion, publishes an annual CSR report.

When the members of a corporate rogues’ gallery such as this all profess to be practitioners of CSR, the concept loses much of its legitimacy. The best that can be said is that these companies may behave well in some respects while screwing up royally in others—the way that Wal-Mart is supposedly in the forefront of environmental reform while retaining its Neanderthal labor relations policies. Selective ethics, however, should be no more tolerable for corporations than it is for people.

Heaven forbid that we violate the free speech rights of CSR hypocrites, but there should be some mechanism—perhaps truth-in-image-advertising laws—to curb the ability of corporations to go on deceiving the public.