PrintJuly 29, 2009
Extorting Big Oil
On the surface, it has all the makings of a classic David vs. Goliath tale -- an ostensibly exploitative multinational oil company plundering the pristine rain forests of impoverished, indigenous inhabitants. The $27 billion lawsuit against the Chevron Corporation was brought by a group of U.S. trial lawyers working in conjunction with the Amazon Defense Coalition (ADC) claiming to represent 30,000 Ecuadorians alleging environmental damage and cancer deaths caused by toxic-waste dumping from oil drilling. It represents the largest damages claim ever sought in an environmental case to date.
However, closer scrutiny of the lawsuit, including an evaluation of an allegedly independent investigation and the tendentious posture of the Ecuadoran court and president reveals a well-orchestrated smear campaign with false and misleading evidence and corruption at the highest levels of government in an attempt to pry money from an American oil company with deep pockets.
The lawsuit has its origins in Texaco's discovery of oil in 1967 in the Oriente region of the Ecuadorian Amazon. The find was heralded as the country's guaranteed route to prosperity. Oriente was a neglected, inaccessible region of the country lacking roads and with inadequate sanitation. But by 1974, Ecuador was the second-largest oil exporter in Latin America and received billions of dollars in foreign loans. At the time, oil revenue accounted for more than 50% of foreign earnings and half of the national budget. By 1981, the economy in Ecuador was ten times its pre-oil size and the average life expectancy in Ecuador skyrocketed from 59.7 years in 1980 to 76.81 in 2008.
Texaco worked in Ecuador under a concession agreement in a government-owned consortium. As a minority partner, Texaco received a 37.5% share of the concession, while state-owned Petroecuador enjoyed a 62.5% stake. From 1964 to 1990, the two companies cooperatively managed the oil field. All of Texaco's activities were conducted under direct oversight and approval of the Ecuadoran government.
In 1992, Texaco was notified that the State would be taking over its minority stake in the consortium. The company embarked on a three-year, $40 million environmental remediation of the area beginning in 1995 under the supervision of Petroecuador and the Ecuadoran government. Upon completion of the remediation, the government of Ecuador certified that the clean up had been completed and released Texaco from future liability. Two internationally recognized consulting firms independently concluded that Texaco's operations had created no significant environmental impact and that Texaco had fulfilled its obligations to close wells and pits, replant cleared land, remediate contaminated soil and modify water systems. During that same period, however, Petroecuador failed to remediate its share of the consortium sites, ignoring its legal and contractual obligations with the government and Texaco
In 2001, the Chevron Corporation, the second-largest oil company in the United States, purchased Texaco. Two years later, a suit was filed in Ecuador against Chevron for environmental destruction and "unjust enrichment" based on Texaco's prior activities. This remarkable landmark case warrants close examination into the conduct of the court, the role of the Ecuadoran government and the seriously flawed investigation that took place.
From the start, the deck was stacked against Chevron. The populist story behind the plaintiff's lead attorney, Pablo Fajardo, who had never tried a case before, was that he was a native Ecuadoran who earned his law degree in 2004 after completing a three-year correspondence course. Further, Fajardo publicly accused Chevron of complicity in his brother's murder in 2004 and claimed the death had not been properly investigated.
In fact, Wilson Fajardo's death had been thoroughly investigated and police reports identified the local individuals responsible. According to an editorial in El Commercio, a daily Ecuadorian newspaper, Wilson Fajardo was murdered by FARC, the Revolutionary Armed Forces of Colombia, a self-proclaimed Marxist-Leninist revolutionary guerrilla group. He had made statements on Radio Ecuador related to drug trafficking that the group found offensive. In fact, prior to his public claim of Chevron involvement, Pablo Fajardo had filed a statement with the police attesting to his understanding of the circumstances surrounding his brother's murder and requesting protection for his brothers' friends. The police report lacks any suggestion that Chevron was involved. Nonetheless, Fajardo made misleading public statements about his brother's murder to cast suspicion on Chevron and ostensibly further the goals of the lawsuit.
As part of the discovery process for the lawsuit, the Ecuadoran court appointed Richard Cabrera, a mining engineer, to conduct the investigation of the remediated sites. But Cabrera, with no background in applied ecology and environmental engineering, was unqualified to conduct the inspections. As part of the inspection process, Cabrera visited 46 of 316 wells and 1 of 19 production stations. In examining his report, Chevron discovered that Cabrera had misidentified photos of Petroecuador pits as Texaco pits, backdated photos to the 1970s and made judgments for remediation of nonexistent pits. Cabrera even found contamination existed at sites he failed to visit.
During what was supposed to have been an independent investigation for the judiciary, Chevron was never offered the opportunity to approve those on the investigation team. Team credentials were not reviewed nor were they certified as experts by the court. Cabrera also failed to identify the laboratory he selected to conduct his sample analysis and both Chevron and the court registered doubt as to the lab's accreditation. Both the oil company and court representatives were denied access to inspect the facilities.
Although the court had ordered a chronological assessment to determine environmental impact during Texaco's stewardship, none was performed. Going beyond his court mandate, Cabrera's report offered cost estimates for the alleged environmental destruction. He recommended remediation at more than $2.2 million per pit, although Petroecuador had been remediating pits to government standards at a cost of $85,000 per pit. Nowhere in his report did Cabrera mention Petroecuador's share of clean up and spills, even though the company has a history of refusals to remediate spills and of general environmental mismanagement.
Independent laboratory testing performed by Chevron at accredited U.S. laboratories indicated that Texaco had met remediation standards. Environmental damage in the area was attributed to mismanagement and documented spills by Petroecuador, which was responsible for 1,415 spills between 2000 and 2008. Furthermore, independent laboratories found that health concerns in the Oriente area were related to lack of sanitation, ineffective waste water treatment and inadequate access to medical care, none of which were Texaco's responsibility.
As part of his report, Cabrera claimed cancer deaths from the contamination but failed to identify a single individual, medical report or government statistic to support these claims. In actuality, government data from Ecuador's Statistics and Census Institute showed that the cancer rate in the concession area is the same as in other regions and that no relationship exists between oil activities and cancer death rates in the Oriente. Dr. Michael Kelsh, a professor at UCLA's School of Public Health compared cancer mortality rates in the Amazon region to those in Quito and found rates in the Amazon to be much lower. Kelsh also found slightly lower cancer rates in the oil activity regions.
Perhaps most egregious of all, Cabrera conducted his fieldwork and composed his report with a support team consisting of members from the ADC, the non-government organization which brought the lawsuit and would benefit from a ruling against Chevron. Not only was Cabrera's report aligned with the strategy and objectives of the plaintiff's attorneys, but ADC paid him $200,000 for his work.
The Ecuadoran President, Rafael Correa, has also played a significant role in this case. Correa, a Leftist anti-American leader and close associate of Venezuelan dictator Hugo Chavez and Iranian President Ahmadinejad, came to power in 2007. He allegedly received FARC funds for his election campaign. In June 2009, he got Ecuador to join the Bolivarian Alternative for the Americas (ALBA), a consortium that includes Cuba, Venezuela, Bolivia and Nicaragua and that recently issued a declaration of support for Ahmadinejad's regime. During his short tenure, Correa has already defaulted on one-third of Ecuador's debt, alleging that it was "immoral" and "illegitimate." It is notable that the $27 billion dollars sought in this lawsuit represents half of Ecuador's gross domestic product.
In what is clearly improper collaboration with the plaintiffs in this case, President Correa has made public statements of support. He has met with representatives of the ADC and offered assistance in evidence gathering in their effort to win a large judgment against Chevron. State Assembly Representative Manuel Mendoza went so far as to state, "We want justice and directly support the tireless struggle of those who have sued Texaco, the remediation of damages, and compensation for thousands of sick people."
The Ecuadoran judiciary receives low marks from the U.S. State Department, the International Bar Association (IBA) and the U.N. Commission on Human Rights. According to the IBA, "There is a serious politicization of the judiciary" and "in many cases no effective independence exists."
Government manipulation is evident in the recent politically motivated indictment of two Chevron attorneys and the demand by Correa and the ADC to criminally prosecute those who signed Texaco's release from liability years ago.
In short, this lawsuit is nothing more than a politicized attempt by the Ecuadoran government to extort money from a deep-pocket, American oil company. Not only is the alleged contamination not substantiated by scientific data, but remediation costs are grossly overstated and cancer deaths remain unproven. If the lawsuit succeeds, Chevron could be held responsible for providing a new potable water system, funding comprehensive health programs, financing improvements to the state-owned oil production infrastructure and paying penalties of $8.3 billion for "unfair profits." It is clear that Chevron, after a 19-year absence from the area following a certified remediation process, is being held hostage to a despotic government under the guise of environmental concerns.
