Calculus Of Announcing The Investigation

(Dow Jones Newswires), June 3, 2010

Some Justice Department subordinates were initially reluctant to make the Gulf oil spill investigations public at a sensitive point in the effort to plug the leaking well.

Nonetheless, Attorney General Eric Holder went ahead and disclosed the department's civil and criminal probes of the disaster Tuesday, confirming an ongoing investigation into a highly publicized event.

The Obama administration has continued policies begun under the George W. Bush administration to aggressively pursue criminal penalties against major corporations, to exact monetary penalties, make restitution to victims and ensure compliance with laws.

But the government has largely stayed away from filing criminal charges against corporations, concerned it could prove a lethal blow to companies that employ thousands of people. A criminal case against the accounting giant Arthur Andersen led to its demise in 2002.

Defense attorneys often complain about the tactic, arguing that publicity can taint jury pools.

In the oil spill case, some have raised concerns that the threat of prosecution could hinder the ongoing response to the spill.

Inside the Justice Department, some officials had been reluctant to go public with the probe of the spill, which began shortly after the oil started leaking. In part, officials feared that the threat of FBI agents looking over the shoulder of BP PLC, the well's owner, and other officials could hinder work to plug the well. Mr. Holder addressed those concerns Tuesday, saying the government's first priority is to stop the spill.

The very fact that there is oil in the water indicates a violation of federal environmental laws, a Justice Department official said. Whether that leads to a criminal case for the companies involved in the Deepwater Horizon operation -- BP, rig owner Transocean Ltd. and other contractors -- will hinge on whether the government concludes that willful violations of the law led to the rig's April 20 explosion, which caused the spill.

Most of these companies were aware that a Justice Department investigation was under way. BP and its contractors have hired multiple law firms to represent their interests, as have some individual officials at the various companies involved.

Mr. Holder's comments appear to be in line with guidelines set in the U.S. Attorney's Manual, the Justice Department's bible for handling prosecutions.

The department usually doesn't discuss investigations until charges are filed. But the manual allows officials to confirm ongoing probes "in matters that have already received substantial publicity, or about which the community needs to be reassured that the appropriate law enforcement agency is investigating the incident."

For example, in recent months, continuing Justice probes into Goldman Sachs Group Inc. and other Wall Street banks have made headlines.

It could take months or even years before the Justice Department can build a case that is ready for a courtroom.

BP and other companies tied to the Gulf spill haven't elaborated on their legal strategy. They have, however, pointed fingers at each other in a series of public hearings before members of Congress, and before an investigatory panel led by the Coast Guard and the Minerals Management Service. White-collar criminal defense attorneys said BP and other companies in the government's crosshairs likely will insist the incident was an accident.

Transocean's position is that it was following BP's orders and that the engineering of the well was BP's design and responsibility. It has conducted its own investigation of the incident through outside lawyers and is seeking BP's engineering documents to review them for faults.

"Transocean has not been named in any criminal investigation," a spokesman said. "We will not speculate on actions the Justice Department may or may not take."

On Tuesday, the Justice Department asked a Houston court to reject Transocean's effort to limit its liability for the oil spill to around $27 million by invoking a 159-year-old law. The Limitation of Liability Act of 1851 was previously invoked by the owners of the SS Titanic to avoid liability when the supposedly unsinkable ship sank.

BP didn't return requests for comment on its legal strategy for defending itself in a criminal investigation.

BP has had previous legal clashes with the U.S. government.

In 2007, a BP subsidiary agreed to plead guilty to an environmental crime and pay $50 million for violating the Clean Air Act in connection with a deadly explosion at a refinery in Texas two years earlier. It also paid $20 million in connection with an oil spill in Alaska and was charged with a misdemeanor.

Also in 2007, BP paid $303 million in criminal and civil penalties and restitution for driving up the price of propane several years earlier. The agreement included a three-year period of probation and the appointment of an outside monitor to oversee compliance efforts.

The Justice Department's environmental section has shied away from those types of agreements. Measures such as the Migratory Bird Act have a strict liability provision meaning no intent is needed to show a violation.

In 2007, Citgo Refining and Chemicals Co. went to trial and was found guilty of three misdemeanor criminal violations of the Migratory Bird Treaty Act by a judge in Corpus Christi, Texas.

After the Exxon Valdez spill of 1989, now the second largest U.S. oil spill in history, Exxon paid $125 million in fines and restitution after pleading guilty to misdemeanors for killing waterfowl under the Migratory Bird act.

All told, ExxonMobil has spent more than $4.3 billion as a result of the Exxon Valdez accident, including compensatory payments, cleanup payments, settlements and fines.

Copyright (c) 2010 Dow Jones & Company, Inc.