BP Compensation Fund Threatens the Rule of Law on a Global Scale
ECONOMICS, CORPORATE CITIZENSHIP, ENVIRONMENT & HEALTH
Wednesday, June 23, 2010
By entering into an agreement with the Administration of U.S. President Barack Obama to pay $20 billion into a fund to compensate victims of the recent Gulf of Mexico oil spill and pay for the environmental clean-up, BP PLC ("BP") has set a dangerous precedent for other transnational corporations who depend on the rule of law to protect them from unproven claims for damages from a host of human rights abuses, both real and alledged.
As clear cut as the case may be that BP operated negligently, by short-circuiting the legal processes that would determine i) the exact cause of the disaster, ii) the parties who were at fault, iii) their respective liability, and iv) the appropriate level of damages to be paid, BP and the Obama Administration have sent a clear signal to governments around the world that public and private coercion can be used to secure a popular political and economic result, regardless of the applicability and limits of existing laws.
The creation of the BP compensation fund must be considered in light of the broader exposure to claims that transnational corporations are facing worldwide. Recent developments in the area of corporate social responsibility have increased the likelihood that transnational corporations will be held responsible for promoting and protecting human rights within the scope of their business activities. Yet, in many cases, the human rights involved are vague and evolving ones, and are subject to political manipulation for wealth redistribution purposes. Thus, tremendous uncertainty already exists as to the scope of actual corporate financial responsibility in the area of human rights, including environmental rights. With the unilateral surrender of BP to the Obama administration's threats of criminal prosecution and a national public shaming campaign, the potential liability of transnational corporations¾now no longer anchored in the organic development of international human rights law¾has grown exponentially.
Two recent developments evidence the increased scrutiny that transnational corporations are facing in the area of human rights.
First, on February 2, 2010, the United States Securities and Exchange Commission ("SEC") published an interpretive release providing guidance to public companies regarding the SEC's existing disclosure requirements as they apply to climate change matters. Under the SEC interpretive release, corporations are required to disclose to their investors material climate-related risks associated with their business operations and the programs in place to manage those risks. After the creation of the BP compensation fund, it is now likely that some governments will pressure transnational corporations to pay money into a fund to compensate their citizens for alledged or potential losses associated with the climate-related risks disclosed in their SEC filings.
Second, on May 28, 2010, the United Nations Global Compact ("UNGC") and the Global Reporting Initiative ("GRI") entered into an agreement to incorporate the UNGC's ten principles in the areas of human rights, labor, environment, and anti-corruption into the GRI's guidelines on universally accepted environmental, social, and governance policies to be adopted by corporations. As it is, over time, human rights groups will argue that the voluntary GRI guidelines have become customary international law and bring lawsuits against corporations for alleged damages resulting from their failure to adhere to the guidelines. After the creation of the BP compensation fund, human rights non-governmental and civil society organizations do not have to wait for the voluntary guidelines to become customary international law that support justiciable claims in court-they can merely encourage sympathetic governments to coerce transnational corporations into creating compensation funds for alledged or potential claims.
In addition, many governments and law firms have been pursuing questionable litigation against transnational corporations for alledged damages from environmental disasters. In light of the BP compensation fund, the participants in these transnational litigation networks will no longer feel compelled to prove their claims in court, instead relying on coercive measures pursued by strong-armed government leaders.
Apart from the exacerbating effect that the creation of the BP compensation fund will have on the trend toward holding transnational corporations responsible for promoting and protecting human rights, the manner in which the fund was negotiated undermines the democratic process. The coerced agreement postpones, alters, or eliminates the necessary examination of:
1. The exact cause of the spill. As it is, it took an investigative report by reporters with the New York Times to inform the public that the spill may have been attributable to the failure of blades on the blind shear ram nestled in the blowout preventer of the Deepwater Horizon oil rig to close completely as they attempted to slice through the drill pipe and seal the Macondo well.
2. The conduct and culpability of the management and workers of BP and Transocean, the offshore drilling contractor.
3. The failure of officials at the Minerals Management Service, the federal agency charged with regulating offshore drilling (the "MMS"), to properly regulate the offshore drilling industry, including repeatedly declining to act on advice from its own experts on how it could minimize the risk of a blind shear ram failure. Significantly, on June 21, U.S. Interior Secretary Ken Salazar renamed the MMS the Bureau of Ocean Energy Management, Regulation, and Enforcement. Perhaps this was done to mask the errors made by the MMS, lessen the likelihood of a retroactive examination of its operational shortcomings, give the appearance that the mandate of the MMS did not include enforcement, or expand the MMS portfolio beyond that provided under current law.
4. The failure of the federal government to effectively manage the clean-up of the oil spill from its earliest stages, including the decision not to waive the Jones Act, legislation that requires all vessels working in U.S. waters to be American built and American crewed. As a result, the U.S. Coast Guard could not accept, and therefore did not ask for, the assistance of high-tech European vessels specifically designed for cleaning up oil spills. During Hurricane Katrina, in order to facilitate some foreign assistance, the Administration of President George W. Bush waived the Jones Act.
5. The source and impact of the environmental pressure that forced BP and other oil companies to drill in deep water, which complicates and makes more risky the oil drilling and extraction process.
6. The determination of the actual damages suffered by the people whose businesses are affected by the oil spill, including an assessment of the relative negligence and liability of BP, Transocean, and the federal government.
7. The applicability of the $75 million federal cap on damages from an oil spill and the political processes (including oil industry lobbying) that led to the adoption of the cap.
8. The inadequacy of the federal legal system to protect the environment and local commercial interests in the case of a disaster of such magnitude and of the federal bankruptcy laws to ensure the eventual payment of all damages awarded by law.
Though the creation of the BP compensation fund should expedite and ensure the payment of many, if not most, of the applicable claims, the coerced agreement will likely have the effect of enabling the responsible private parties and the federal government to gloss over the above questions and other difficult questions. As a result of the tactics of the Obama Administration, the answers to these questions, and the exhaustive information gathering and revealing deliberations that would be required to secure them, may not be pursued.
In place of the objective information gathering and deliberations that would take place in a democratic, rule of law-based society, President Obama has appointed a seven-person commission to examine the cause of the Gulf spill and the steps that need to be taken to make offshore drillling safe. From all indications, as explained in a June 22, 2010 editorial in the Wall Street Journal, the majority of the members of the Commission consists of politicians and environmental activists who, at best, are not oil or drilling experts, and, at worst, oppose off-shore and Artic drilling for oil.
By coercing BP to create its $20 billion compensation fund, the Obama administration has undermined the rule of law in a manner that will profoundly impact the business operations of transnational corporations in the United States and around the world. Although, in the short term, this action may win the approval of those residents of the Gulf region whose lives have been devastated by the spill, long-term, this action will create significant uncertainty on the part of transnational corporations and investors upon whose success the economic well-being of America's future depends.
Jim Kelly is the President of Solidarity Center for Law and Justice, P.C., a public interest civil and human rights law firm based in Atlanta, Georgia. The opinions expressed herein are his own.
A JOINT PROGRAM OF
