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BP's Gulf Oil Spill: The Odds of Fines, Jail Time and the "Death Penalty"

By Kirsten Korosec

Updated on: June 3, 2010 / 6:40 AM EDT / MoneyWatch

The U.S. Justice Department's criminal and civil investigation into the Gulf oil spill is the start of what promises to be a very long legal process. So, for folks hoping to watch BP CEO Tony Hayward led off in handcuffs: Prepare for disappointment. The likely outcome will be fines, not jail time. Even then, it will take years for the investigation and various legal proceedings to make their way through the courts. The Exxon Valdez case, for example, took 21 years and a U.S. Supreme Court ruling before it ended.

Still, BP, Transocean (RIG) and Halliburton (HAL) -- the three companies involved in the Deepwater Horizon oil rig explosion and Gulf oil spill -- won't walk away unscathed. BP has already spent nearly $1 billion on the containment and cleanup efforts. And it's facing billions of dollars in liability for environmental damage.

It's still too early to know exactly where this investigation will go and what the ultimate legal implications will be for the likes of BP. Here's how it could play out.

Violations Investigators will look for violations under the Clean Water Act; the Oil Pollution Act of 1990; the Migratory Bird Treaty Act; the Endangered Species Act and possibly the Refuse Act. Each law has its own benefits and DOJ prosecutors could charge BP with violating any or all of them. In the 1989 Exxon Valdez case, for example, Exxon (XOM) and a shipping unit of the company pleaded guilty to criminal violations of the Clean Water Act, Migratory Bird Treaty Act and Refuse Act.

Clean Water Act: carries civil penalties and fines and criminal penalties;
Oil Pollution Act: can be used to hold parties liable for cleanup costs and reimbursement for government efforts
Migratory Bird Treat and Endangered Species: would provide penalties for injury and death to wildlife and bird species;
Refuse Act: Covers illegal dumping in waterways and subject to criminal prosecution
Other criminal statutes: By including "other criminal statutes," U.S. Attorney General Eric Holder is sending a signal to BP: We could take this in just about any direction we want.

The most likely, and easiest, criminal penalty to prove, would be a misdemeanor violation of the Clean Water Act. And those could be stiff -- up to $32,500 per day for each violation -- the Houston Chronicle noted. The feds would basically need to prove negligence. A felony violation would be much more difficult because prosecutors would have to show BP "knowingly" committed the violations. The most severe violation would be "knowing endangerment," which is even tougher to prove, and carries fines up to $1 million (per violation).

Here's where internal memos or exchanges between the companies will become especially important. Halliburton, for example, warned BP two days before the rig exploded that the well faced "severe gas flow problems" unless it installed more centering devices. BP decided to install six instead of the 21 devices Halliburton recommended. Memos like this will be crucial for prosecutors aiming for felony convictions.

BP's strategy BP could take a page from its own playbook. After the 2005 Texas City refinery fire, BP agreed to pay out $1.6 billion in private settlements and then plead guilty to lesser criminal violations. BP Products North America agreed in 2007 to plead guilty to a felony for failing to have adequate written procedures and for failing to inform contractors of the hazards related to their occupancy of temporary trailers located near the refinery's isomerization unit. BP Products agreed to a $50 million fine and three years probation.

Of course, it's important to actually abide by the agreement. And in the Texas refinery case, BP didn't. OSHA slapped last October BP with a record $87.4 million fine for failing to correct safety hazards found after the 2005 refinery explosion. OSHA also added this lovely nugget: BP committed hundreds of new violations at the refinery.

Repeat offender Here's where BP's past problems could really come back to haunt it. Under the Clean Air Act, fines for criminal violations double if it's for a violation committed after the first conviction.

BP doesn't have one conviction. It has at least three prior federal convictions -- two of them felonies, in the past decade. BP Products North America is still on probation for the Texas City refinery fire. BP Exploration Alaska Inc., which plead guilty in 2007 to a misdemeanor violation of the the Federal Water Pollution Control Act for its Prudhoe Bay pipeline spill in 2006, was also put on three years of probation.

BP's probation could be revoked altogether. However, the feds would have to successfully argue that although probation was issued to BP Products and BP Exploration, it applies to the parent company.

Death penalty Among all of the other least desirable scenarios, BP could get the a so-called death penalty -- a debarment from federal contracts. Normally, this is seen as an extreme course of action. But it's more likely here because the EPA was already talking to BP about debarment from federal contracts before the Gulf spill. A debarment could block BP from renewing (or winning new) any leases to drill in federal lands or waters, essentially killing off the company's revenue stream in the U.S.

Photo of handcuffed person from Flickr user Mark Coggins, CC 2.0 Photo of Darth Vader handcuffed from Flickr user pasukaru76, CC 2.0 Related: