Thursday, September 17, 2009

Forbes: The Chevron Way

Excellent commentary from Steven Donzinger in Forbes yesterday.

As corporate values statements go, there are few more stirring than the "Chevron Way" espoused by the nation's third largest corporation. Chevron aspires to be "the global energy company most admired for its people, partnership and performance," one that conducts business "in a socially responsible and ethical manner," and "respects the law, supports universal human rights, protects the environment and benefits the communities where we work." That's heady stuff.

Like most corporations today, Chevron has worked hard to learn the lessons of the corporate and social responsibility movement. It spends significant sums of advertising dollars marketing itself as an environmentally sensitive company. No matter how one might feel about oil companies, most entrepreneurs would agree that Chevron has every right to turn a robust profit--as long as it conducts itself in an ethical, legal and responsible manner consistent with its own high-minded rhetoric.

Yet for all the nice words, Chevron's actions--and values--have not always been so responsible. In fact, there is increasing evidence that some of those actions have been downright harmful to the environment and continue to create health risks for thousands of men, woman and children. Which brings us to Ecuador...

Ecuador is where Chevron currently faces a potentially $27.3 billion financial liability in a long-running legal case over the consequences of Texaco's alleged sub-standard operational practices in the Amazon rainforest. In 2001, Chevron acquired Texaco. And evidence in the lawsuit, plaintiffs say, demonstrates that from 1964 to 1992 Texaco deliberately dumped billions of gallons of toxic waste into Amazon waterways, abandoned more than 900 unlined waste pits, burned millions of cubic meters of noxious gases, and spilled more than 17 million gallons of oil due to pipeline ruptures. A court-appointed special master who conducted a damages assessment found that 173 out of 196 former waste pits operated by Texaco and inspected during the trial are contaminated with petroleum hydrocarbons in violation of Ecuadorian standards (each of Texaco's 356 well sites in Ecuador had multiple waste pits.) One plaintiff's expert said he believes cleaning this mess would be one of the largest decontamination efforts ever attempted.

And the plaintiffs have presented evidence that Texaco acted knowingly. An extraordinary memo dated July 17, 1972, from R.C. Shields, then-head of all Latin American production for Texaco, issued a blunt directive to Texaco's acting manager in Ecuador: "No reports are to be kept on a routine basis, and all previous reports are to be removed from field and division offices and destroyed." Good corporate citizens don't demand that reports documenting environmental damage be destroyed.

In 1992, on the eve of its departure from Ecuador, Texaco quietly hired two outside consulting firms to assess the environmental impact of the company's practices. The audits, which were submitted by Chevron as evidence, found that hydrocarbon contamination "requires remediation at all production facilities and a majority of the drill sites," that "produced water was disposed of into a local creek or river or in some instances directly into the jungle," and that in general, "spills of hydrocarbons and chemicals were not cleaned up." One report found that well site spills occurred at 158 of the 163 assessed sites. It also found, shockingly, that under Texaco's watch, prior to 1990 no spill prevention methods were in place, little maintenance had been done on any of the pits, and there was no groundwater monitoring to assess contamination.

There is also a living record of the contamination from witness testimony: the indigenous people and campesinos of the region, whose children bathed in, played in and drank petroleum-laced water. Evidence has been presented from peer-reviewed academic journals that post-Texaco life on the Amazon saw cancer rates--including childhood leukemia--three times higher than rates in the rest of Ecuador. There is also evidence of elevated rates of miscarriages due to exposure to oil contamination and extensive anecdotal evidence of birth defects. After visiting the region last year, U.S. Rep. James P. McGovern wrote in a letter to President Barack Obama, "As an American citizen, the degradation and contamination left behind by this U.S. company in a poor part of the world made me angry and ashamed."

Douglas Beltman, a former EPA official who serves as a scientific consultant to the affected indigenous groups, summarized the problem succinctly: "Texaco treated Ecuador's Amazon like a garbage dump. Almost everything an oil company could do wrong, Texaco did do wrong." With the complaints about contamination ignored, I and several other lawyers filed a lawsuit in 1993 on behalf of thousands of affected Ecuadorian citizens. The case was filed in New York federal court, within miles of Texaco's corporate headquarters. The objective was to compel the company responsible for what has been called the "Amazon Chernobyl" to pay for a clean-up. Texaco fought for nine years to move the case to Ecuador, filing 14 sworn affidavits asserting that the country's courts were a fair and adequate forum. In 2002, Texaco--by then, ChevronTexaco (and since renamed, simply, Chevron)--won that battle on the condition that it accept jurisdiction and abide by any ruling in Ecuador.

In May 2003, the Amazon communities re-filed the lawsuit in Ecuador. Over the course of the long trial, more than 60,000 soil and water sampling results culled by the parties and an independent expert have been tested by independent laboratories. These results have then been re-confirmed by yet other independent sources, including a court-appointed special master and U.S. scientists who formerly worked for the EPA and Department of Justice who consult with the local communities. The results show extensive toxic contamination in soils at 100% of Texaco's former well sites.

As the scientific evidence against Chevron mounted, the company went on the attack. It attacked the trial process as unfair--even though it had signed off on the process. It attacked the Ecuadorian judge as corrupt--even though it had filed countless affidavits praising Ecuador's judiciary. It hired lobbyists in Washington to bring pressure on Ecuador President Rafael Correa to quash the case. It promised decades of litigation to prevent a final judgment. In short, Chevron did everything it could to undermine the court system that it had previously praised. Chevron then tried to shift the blame to Petroecuador, Texaco's consortium partner from 1964 to 1990 and Ecuador's state-owned oil company. Yet records in evidence show that Texaco was the sole operator in Ecuador--exclusively designing, installing and running the massive operation.

Internal company documents from the discovery process demonstrate Texaco made all significant production and business decisions, even down to how much could be spent to purchase a file cabinet. It is customary in the oil industry for the operator of oil fields to bear 100% of the responsibility for environmental contamination--and to be compensated for the additional risk.

Chevron also claims it is not liable because in 1995 it paid $40 million to "clean" a portion of the well sites and waste pits in exchange for a release from liability from Ecuador's government. Interestingly, Chevron received the release before remediating a single site. Evidence at trial submitted by the plaintiffs demonstrates that Texaco's purported clean-up ignored the contaminated groundwater, rivers and streams, and consisted primarily of dumping dirt over waste pits without adequately cleaning out the toxins--akin to treating skin cancer with make-up. Evidence submitted by the plaintiffs shows that one well site, Lago Agrio 2, today has levels of TPH 3,250 times higher than allowed in the U.S. and 325 times higher than allowed under Ecuadorian law even though it had been certified by Texaco as "remediated" to secure its release. Worse, two former Texaco lawyers (now Chevron employees) and seven former Ecuadorian government officials are under criminal indictment in Ecuador for allegedly lying about the clean-up. Chevron announced this sad fact in its own press release.

On recently, writer Silvia Santacruz rolled out the latest of Chevron's counter-attacks: that Ecuadorian President Rafael Correa has publicly supported the plaintiffs and made a fair trial impossible; that plaintiff attorneys have made a career out of pursuing Chevron; and that this is really just a case of radical environmentalism at work. What Chevron doesn't say is that it has been afforded more due process rights than probably any defendant in the history of environmental litigation. The company has submitted more than 100,000 pages of evidence and more than 50,000 chemical sampling results to the court, most of which were found by the special master to corroborate the allegations of the plaintiffs that the company's former well sites pose a high risk to human health. The indigenous communities already have waited 16 years for a resolution of their claims.

At the end of August, the case took its strangest turn yet, when Chevron claimed it had video footage implicating the Ecuadoran judge presiding over the trial in a "$3 million bribery scheme." "Except," as Han Shan editorialized on the Huffington Post, "it didn't. The company revealed videos showing a former Chevron contractor named Diego Borja and an American businessman named Wayne Hansen, who appear to be trying fruitlessly to entrap the presiding judge, Juan Nunez." As the Financial Times pointed out in a Sept. 1 article, "The judge refuses several times on the tape to reveal the verdict, before saying, 'Yes sir,' when asked if he will find Chevron guilty. Nonetheless, the video begs the question whether Judge Nunez understood what he was being asked." The Ecuadoran government says it will investigate, and Nunez has recused himself from the case for any appearance of impropriety.

But, as the Los Angeles Times put it in an editorial, Ecuador's government "should probe not just the judge's actions but those of Chevron." While claiming to have no role in the sting operation, Chevron admits it paid for the relocation of Borja and his family to the U.S., and provided support. It has also admitted that it had the videotape in its possession since June, but didn't notify American or Ecuadoran officials before its media blitz. And, equally suspicious, Chevron has not allowed reporters covering the story to speak with either Borja or Hansen about the incident--which, in Shan's words, "raises more troubling questions about Chevron than about the judge or Ecuador's judicial process."

In the meantime, the U.S. Supreme Court and U.S. federal trial courts have dealt Chevron five consecutive defeats in the company's attempt to shift the liability to Petroecuador. New York Attorney General Andrew Cuomo--at the request of several Chevron shareholders, including the state's pension fund--has launched an investigation to determine whether Chevron is misleading the financial markets about the risk it faces in Ecuador. And an award-winning independent documentary by Joe Berlinger, CRUDE, will land in theaters in September.

The humanitarian crisis could be quickly addressed if Chevron chose to clean up its mess, as any responsible company would do. Instead, it has decided to violate the values in the "Chevron Way" and reach into its deep pockets, to litigate indefinitely because it is cheaper than funding a clean-up. It has told shareholders it will not pay even if found guilty--a brazen sign of disrespect for the law that not only violates Chevron's previous obligation to a U.S. court, but also damages the image of the United States throughout Latin America. And all the while, Chevron is running ads singing the praises of its environmental and human rights practices.

Until Chevron addresses the consequences of Texaco's rogue behavior in Ecuador, besmirching its reputation and giving American companies a bad name will be the real meaning of the Chevron Way.

Steven Donziger, a New York lawyer, represents Ecuadorian plaintiffs in their suit against Chevron.

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