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In response to the massive oil spill (over 19,000 square miles in area--or larger than the state of Maryland) in the Gulf of Mexico, on June 18, 2010, U.S. Department of the Interior Secretary Ken Salazar issued an order renaming the Minerals Management Service (MMS) the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE). MMS/BOEMRE manages the nation's natural gas, oil and other mineral resources on the outer continental shelf. On June 15, President Barack Obama appointed Michael Bromwich to head the reorganized MMS and overhaul regulations governing offshore oil drilling.

The appointment of Bromwich--a former prosecutor--as Director of BOEMRE reflects the no-nonsense response of the Administration to the environmental disaster and growing public dissatisfaction. Bromwich was an Inspector General for the U.S. Department of Justice. Prior to that, he was an Assistant U.S. Attorney for the U.S. Attorney's Office for the Southern District of New York. Bromwich was an Associate Counsel for the Office of the Independent Counsel for Iran-Contra, and headed an Investigation into the Federal Bureau of Investigation Laboratory. He has been appointed as an independent monitor to investigate the Metropolitan Police Department for the District of Columbia, and the crime lab for the Houston Police Department. Prior to his appointment as head of BOEMRE, Bromwich was a partner with Fried Frank in New York and Washington. Bromwich has developed a reputation for helping to turn around troubled federal agencies.

Director Bromwich has written a column today in Newsweek which confirms the Adminstration's tough approach. In the column, Bromwich discusses his acceptance of the appointment by President Obama and Secretary Salazar. He emphasizes that his career has been defined by law enforcement, and that his experience in monitoring agencies will guide his reform of BOEMRE. Bromwich cites the alleged "coziness" of MMS with oil companies. On the subject of the Deepwater Horizon oil leak, he comments that the evidence suggests that British Petroleum (BP) and other companies "cut corners or made grave errors that led to the explosion."

Bromwich cites a need for "aggressive" investigators and states that BOEMRE has announced an "Investigations and Review Unit" (IRU), composed of prosecutors, investigators, scientists and other experts, to investigate allegations of misconduct by companies regulated by BOEMRE. The column states that companies that fail to cooperate may have their drilling permits suspended. "Serious wrongdoing" will be referred to the Department of Justice for prosecution.

Bromwich further states that BOEMRE and the IRU will investigate potential conflicts of interest, will conduct more thorough reviews of applications for drilling permits and more thorough environmental analyses, and will increase research of spill control. Bromwich concludes with the caveat that his efforts "while potentially aggressive, will not be hasty."

Bromwich's statements are certainly not comforting to BP, TransOcean or the other companies with ties to the Deepwater Horizon disaster. However, only time will tell if Bromwich's and BOEMRE's efforts are successful in bringing about any reform to the offshore drilling industry, especially in the face of a risk of increased energy prices. On June 30, 2010, Secretary Salazar issued a press release announcing that the Department of the Interior is postponing public scope meetings on the Environmental Impact Statement (EIS) for the 2012–2017 Outer Continental Shelf (OCS) Oil and Gas Leasing Program until later this year. The release states that, while the Department is committed to "strong" reforms in the oil and gas industry, "[o]ffshore oil and gas production will remain an important component of our nation’s energy portfolio as we transition to a clean energy economy." With a "clean energy economy" being a distant dream at this point, it is uncertain how much increased regulation the Adminstration is willing to heap upon the industry.

Image from The Canadian

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U.S. Attorney General Eric Holder informed the media yesterday that the federal government has opened criminal and civil investigations into the 44 day-old oil spill disaster in the Gulf of Mexico, as reported in the L.A. Daily News and elsewhere. Last month, U.S. President Barack Obama appointed an independent commission to investigate the causes of the disaster and to recommend measures to prevent a recurrence in the future. The commission is co-chaired by former Florida Governor Bob Graham and former head of the U.S. Environmental Protection Agency, William K. Reilly.

The lack of procedures to handle the possibility of a deep undersea spill and the seeming lack of haste in staunching the spill by United Kingdom-based British Petroleum, which leases the Deepwater Horizon oil rig, and Switzerland-based Transocean, Ltd., which owns the rig, have justly opened the companies to public criticism and condemnation, civil suits and likely civil penalties and fines. The disaster is the largest offshore oil spill in U.S. history, and is on its way to becoming the largest spill in world history as the leak continues (the largest was the willful discharge of oil by the Iraqi military from the Sea Island Terminal in Iraq in January of 1991 during the Gulf War, which discharged 462 million gallons of oil into the Persian Gulf).

Some challenges facing any potential criminal investigation or prosecution include the fact that the spill is allegedly accidental, and that its source was some 52 miles southeast of Louisiana--outside U.S. territorial waters. However, some theories of prosecution may be available. For instance, Title 33 United States Code Section 1321, entitled "Oil and hazardous substance liability," applies to discharges from "offshore facilities." The statute provides, in part, that:

(3) The discharge of oil or hazardous substances (i) into or upon the navigable waters of the United States, adjoining shorelines, or into or upon the waters of the contiguous zone, or (ii) in connection with activities under the Outer Continental Shelf Lands Act [43 U.S.C.A. § 1331 et seq.] or the Deepwater Port Act of 1974 [33 U.S.C.A. § 1501 et seq.], or which may affect natural resources belonging to, appertaining to, or under the exclusive management authority of the United States (including resources under the Magnuson-Stevens Fishery Conservation and Management Act [16 U.S.C.A. § 1801 et seq.] ), in such quantities as may be harmful as determined by the President under paragraph (4) of this subsection, is prohibited...

33 U.S.C. 1321(b)(3). Persons in charge of a vessel or offshore facility and having knowledge of a discharge of oil must immediately notify the appropriate U.S. agency. Failure to do so can result in a fine and up to 5 years' imprisonment. The statute also provides for administrative and civil penalties for owners, operators or persons in charge of vessels or facilities from which there is a discharge, or who fail or refuse to comply with relevant regulations issued by the Administrator of the U.S. Environmental Protection agency, as well as any recovery costs by the government.

Undoubtedly, grounds for charges might be found in the U.S.' extensive environmental laws and regulations. One thing is certain--now that the Department of Justice has been mobilized to respond to the disaster, the corporate actors in relation to the spill will almost certainly not emerge without paying a steep criminal and civil settlement.

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The Federal government is building criminal cases against more than 150 U.S. citizens holding overseas bank accounts with Union Bank of Switzerland (UBS), as reported by Reuters and the Banking Times. The criminal investigations are part of a Federal crackdown on tax evasion by means of overseas accounts and were facilitated by a settlement between U.S. and Swiss authorities earlier this month in which Switzerland agreed to disclose the identities of some 5,000 U.S. citizen account holders, contrary to Switzerland's longstanding tradition of banking secrecy. UBS has already settled charges that it assisted U.S. customers in evading taxes for $780 million.

As the IRS states on its website, under the agreement, the IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts. UBS will give account holders notice if information relating to the acocunt holders is included in the IRS treaty request. "Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations." "The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action."

Four U.S. clients of UBS, three in Florida and one in California, are already being prosecuted based on the information provided by UBS. And the number of investigations and prosecutions are expected to grow. In a press release,Tax Commissioner Doug Shulman claimed that the U.S./Swiss agreement "puts in place an apparatus for the IRS to obtain information on thousands of offshore accounts. Further the Swiss government is prepared to work with us regarding similar U.S. requests, if any, involving other financial institutions." U.S. and Swiss authorities are reportedly negotiating for the disclosure of thousands of additional names of U.S. account holders. Commissioner Shulman stated that international tax evasion is a "top priority."

Commissioner Shulman stated that the IRS has set a "voluntary disclosure" deadline of September 23, 2009, for UBS customers with unreported, offshore income, and advised persons to contact a tax professional. Customers receiving notification from the bank may come forward under the voluntary disclosure program--however "once the Swiss government sends [the IRS] the name, all bets are off." UBS customers with any reason for concern should strongly consider promptly contacting tax and legal professionals.

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