By Michael Isikoff and Michael Hirsh | NEWSWEEK
Published May 7, 2010
From the magazine issue dated May 17, 2010
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Tony Hayward, the CEO of BP, has a couple of major problems on his hands these days. One lies down near the earth's crust; the other exists deep in the muck of Washington politics. It may take many months to cap the 5,000-foot-deep oil gusher in the Gulf of Mexico. In the meantime, Hayward has to cap the damage to BP's reputation, and reduce its liability for what could be the costliest cleanup in corporate history. He was already hard at work last week, making the rounds of key senators from coastal states affected by the spill. Described as exhausted but wearing a "wry smile," Hayward impressed several lawmakers with his earnestness about stopping the leak. He also seemed intent on deflecting questions about responsibility. "He was candid on most of his answers," says Florida Sen. Bill Nelson. But when Hayward was pressed on how much BP will compensate businesses and fishermen harmed by the spill, Nelson says, "he dodged" and became "very lawyerly."
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The Obama administration has promised to "keep the boot on the throat" of the giant British company, as White House Press Secretary Robert Gibbs put it. Others will be trying to do the same. In the coming months there will be lawsuits, hearings, and investigations galore on the spill and who's responsible for it, as well as heated debates over President Obama's offshore-drilling plans and new legislation, including a bill raising a $75 million ceiling on BP's liability for compensation to injured parties. But BP will seek to leverage every penny of the $15.9 million it spent on lobbying last year (its most ever) as it seeks to fend off allegations that the company and its contractors failed to abide by safety provisions for deepwater drilling. Most of all, it will try to contain the penalties it has to pay. If the past is any guide, BP will succeed at that. The story of the company's handling of other safety problems illustrates how easily high-powered lawyers and sheer corporate muscle can often overwhelm the best efforts of federal regulators. (A BP spokesman said the company "will honor all legitimate claims" stemming from the oil spill. The spokesman declined to comment on all other questions posed by NEWSWEEK.)
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BP was once known as British Petroleum, but the company changed its name in 2000 to project a more environmentally friendly image, saying the initials stood for "Beyond Petroleum." Hayward deserves credit for improving on the legacy of former chairman John Browne, whose efforts in acquisition and cost cutting left serious questions about BP's safety and environmental policies. Part of Hayward's effort, however, was to increase the company's lobbying "exponentially" in Washington and to dilute new laws on the prevention of oil-spill pollution in 2009, says Dave Levinthal of the Center for Responsive Politics. At times BP has enlisted powerful Washington types like Leon Panetta (now CIA director), George Mitchell (now Obama's Middle East envoy), Christine Todd Whitman (the former EPA administrator), and Tom Daschle (the former majority leader) to serve on its various boards of advisers and "independent" panels. In his rounds on Capitol Hill last week, Hayward was escorted by a former aide to Ted Kennedy who now works for the Brunswick Group, a powerhouse public-relations firm recently hired by BP to help it deal with the oil-spill crisis.
The company's most recent effort at damage control—before the spill—occurred after a 2005 explosion at the company's Texas City refinery (the third-largest oil refinery in the country). That was among the most deadly disasters to befall the U.S. oil industry in modern times. The blasts and subsequent fires killed 15 workers, injured 180 others, and sent 43,000 people fleeing to indoor shelters. The Chemical Safety and Hazard Investigation Board later concluded that the explosions were caused by company deficiencies "at all levels of the BP Corporation"—including repeated cost cutting that affected maintenance and safety. The Justice Department, working with EPA investigators, launched a criminal investigation that resulted in a $50 million fine against the company for violating the Clean Air Act. But EPA investigators wanted to take the case further and charge top corporate officers, who, they were convinced, had knowledge of the safety deficiencies at Texas City and failed to take corrective action. Their request to continue the investigation was turned down by top officials of the Justice Department's environmental-crimes division, leaving the EPA investigators incensed, according to two EPA officials directly familiar with the probe. "We felt like this went all the way to the very top," says one EPA investigator, who did not want to be identified talking about internal matters. "The $50 million was a laughingstock. It was a slap on the wrist compared to the profits they were making." (BP's reported profits in 2007 were $17.2 billion.)
In 2006 the EPA and the Justice Department launched a criminal investigation into two massive BP oil leaks in Alaska caused by corroded pipelines. One of the leaks spewed 200,000 gallons onto the tundra. Once again, EPA investigators pushed to charge company officials with a crime. "Everybody was convinced we had a humdinger of a case," says Scott West, the EPA special agent in charge of the probe, who has since retired. Witnesses—including workers on the pipelines and midlevel managers—had told investigators how BP executives had ignored repeated warnings about corrosion. "There was a corporate philosophy that it was cheaper to operate to failure and then deal with the problem later rather than do preventive maintenance," West told NEWSWEEK. Later that year, West says, he got authority from the U.S. Attorney's Office in Alaska for a "surgical" subpoena for internal documents relating to the company's maintenance of the pipelines. BP complied in early 2007, but in a way that made it virtually impossible for investigators to find the evidence they needed: BP set up a special server with scanned copies of 62 million pages of documents. "If you printed all of them out," says West, "it would have filled a warehouse … We only had three or four people." When he began to examine BP's response, West says, he remembers thinking, "Holy s--t, I can't breathe."
Still, West (who now works for Sea Shepherd, an environmental group) was determined to push a multiyear investigation—not unusual for a complex case that, as he envisioned it, would ultimately reach into corporate headquarters in London. But just a few months later, West says, he was told by federal prosecutors in Alaska to bring the case to a close. "We were told, 'Main Justice wants this wrapped up,' and 'All we can get is a corporate misdemeanor.'?" According to West and Bob Wojnicz, another since-retired EPA agent on the case, BP's high-powered legal team (headed by Houston lawyer Carol Dinkins, a former deputy attorney general under George H.W. Bush who had previously served as chief of the Justice Department's environment division) had gone over the agents' heads. Dinkins negotiated a "global" settlement of all Justice Department inquiries into the company's conduct—including the Alaska-pipeline case and Texas City—that was to be announced the same day. "There was no reason to shut it down at that point," says Wojnicz. Nelson Cohen, the U.S. attorney in Alaska at the time, says there was no "realistic chance of generating useful evidence" from continuing the probe and that all investigating agencies and prosecutors concurred in the decision to accept the misdemeanor plea from BP, which included a $20 million fine. Dinkins says, "I don't comment on my work for my clients."
In fact, BP's legal difficulties weren't yet over. Another set of EPA officials decided that BP should potentially face an even stiffer sanction: debarment from government contracts. But they, too, ran into a wall. Jeanne Pascal, until recently a lawyer in the EPA's Seattle office who specialized in debarment cases, decided to attempt to invoke that provision against BP—unless the company agreed to tighter controls over safety and maintenance. Pascal says her proposed agreement would have required BP to turn over invoices of its maintenance costs; it would also have had to consent to regular audits of its operations and provide better protections for whistle-blowers. "I told them if they didn't give me what I want, I would debar them," Pascal told NEWSWEEK. But Pascal quickly ran into the oil-company equivalent of "too big to fail"—and knew that her threat was essentially empty. Although this is not widely known, BP has been one of the biggest suppliers of fuel to the Pentagon in recent years, with much of its oil going to U.S. military operations in the Mideast. (It sold $2.2 billion in oil to the Pentagon last year, making it No. 1 among all the oil companies in sales to the military, according to the latest figures from the Defense Energy Support Center.)
If she pushed debarment too hard, Pascal was sure the Pentagon would simply invoke a national-security exception that would allow BP to continue to sell it oil. When "a major economic and political giant?.?.?.?tells you it has direct access to the White House, it's very intimidating," says Pascal. After nearly two years of trying, Pascal retired from the EPA in February with the settlement agreement unsigned. "I can't tell you that if my compliance agreement had been signed it would have prevented what happened in the gulf," she says. "We just don't know." Whether that unfortunate history will repeat itself, with the company facing its worst crisis ever, is also unknown. But for BP, finding its way around Washington is terrain far more familiar than the bottom of the Gulf of Mexico.