Ecuador's $27 Billion Shakedown of Chevron

Ecuadorean President Rafael Correa’s $27 billion environmenal lawsuit against Chevron has all the characteristics of a corrupt banana republic:

Judicial intimidation, bribery and bogus studies by paid-off experts.

In the long-running, government-backed suit against the giant American oil company, which vows it will never give in to what it calls a “shakedown” by the government and its political cronies, Chevron rejects that it is liable for any claims of environmental damage in the country’s Amazon region.

“The government of Ecuador says that we should be paying for this and we are not going to. We are going to stand and fight this suit,” Donald Campbell, Chevron’s manager for external communications, told HUMAN EVENTS.

The oil fields at issue were drilled and pumped under a partnership with Texaco and Ecuador’s state-owned oil company, Petroecuador, which ultimately seized all of the fields, assuming 100 percent responsibility over the oil concession in 1992. Texaco was subsequently bought by Chevron in an acquisition deal in 2001 that included a full release from Ecuador for any and all claims against them.

But in a hidden deal with the Ecuador government in the environmental case, lawyers chose to sue only Chevron, not Petroecuador which has been responsible for hundreds of oil spills in the area ever since they took over all drilling rights.

Attorney Cristobal Bonifaz, one of the original architects in the civil suit, had given Ecuador officials assurances that state-run Petroecuador would not be sued for its damage to the area or by the natives living there, if the government gave their full support to their case.

“I delivered notarized documents to the Attorney General confirming the indigenous people’s commitment from suing the government,” Bonifaz told the Ecuadorian newspaper El Comercio in a 1997 interview.

Then the trial lawyers brought environmental charges against Chevron, for damages that they said were left behind by Texaco, demanding that the company pay $27 billion in clean up costs on sites they said had polluted the lands, poisoned its rivers and injured the health of its people. “They knowingly ignore Petroecuador’s ongoing pollution and environmental mismanagement,” Chevron said.

Ecuador’s debt-ridden, over-regulated economy could use the money.

President Correa, elected in 2007 on a platform of sweeping government controls over banking and the oil industry, has run the country into the ground — vowing to default on its massive debts and oppose any and all free trade pacts with the U.S.

Since then, “capital flight has soared, and foreign direct investment has fallen,” according  to the Wall Street Journal/Heritage Foundation’s 2010 Index of Economic Freedom that showed Ecuador’s rating has dropped toward the least free economies of the world.

Correa, closely aligned with Venezuela’s socialist President Hugo Chavez, has cracked down on the news media and tightened regulations on business and labor. There is widespread corruption in the judiciary, and property rights are abused with impunity.

Ecuador “has ample petroleum reserves, but the government-run oil industry is mismanaged and corrupt, and production is declining. Factions in the legislature fuel political and institutional instability, and there is a lack of respect for the rule of law,” the Index concluded in its report earlier this year.

It is against this bleak political backdrop that the government has been relentlessly backing a lawsuit that has become a long-running soap opera of under-handed tactics and hidden deal making that have undermined its case.

Among the many allegations and developments in the case:

— The Correa regime has established a political atmosphere in the country where judges are vulnerable to intimidation and that has become an issue in this case.

Arturo Torres, judicial editor of El Comercio, an independent newspaper in Ecuador, told Dow Jones News Service that “Judges fear ruling in any way that could be seen as going against Correa. They know they can lose their position and that they can be called traitor to the country.”

— A video tape, obtained by Chevron, was made in August, 2009 of an Ecuadorian judge engaged in a conversation that allegedly offered him a bribe of $3 million if he were to rule against Chevron.

— The mining engineer who authored an allegedly independent report to assess damages to the oil fields, who recommended that Chevron pay $27 billion in damages, turned out to have serious conflicts of interest in the case.

Chevron said Richard Cabrera who made the report was “the majority owner of an oil field remediation company, CAMPET that stands to gain financially from a judgement against Chevron. CAMPET was registered to perform oilfield remediation and other services for Petroecuador.”

“Cabrera was not only paid solely by the plaintiffs, but he openly relied on them to staff his effort while seeking to obstruct Chevron’s representatives from even observing his work,” Chevron officials said.

“His work product is devoid of scientific content, lacks even the most basic evidentiary support, and assesses monetary relief for alleged environmental damage and health claims he has never even bothered to investigate, inspect or verify,” Chevron said in a response to the Cabrera Report.

— After Cabrera’s conflicts of interest were revealed, Dow Jones News Service reported that a second court appointed expert said he had found no evidence of hydrocarbon contamination in rivers in the regions where Chevron is being sued for poisoning the environment.

Instead, court-appointed biologist Jorge Bermeo said he found high levels of bacterial contamination that came from fecal matter that could be the cause of the local native population’s illnesses. He also found trace metals in local fish.

Attorneys for the plaintiffs criticized the report, charging that it reached conclusions that Chevron wanted. But Bermeo told the San Francisco Sentinel that “No representative of the company has ever pressured me or tried to influence my report.”

Pablo Fajardo, lawyer for the plaintiffs, isn’t buying that. “What has been found in fish has direct relation to the oil activity, and yet, the expert is trying to provide a tool to Chevron’s defense,” he told reporters.

The latest development in the case broke last week in New York where U .S. District Court Judge Leonard B. Sand rejected a suit filed by Ecuador to block Chevron’s effort to have the dispute settled through international arbitration under the rules of the U.N. Commission on International Trade Law.

Ecuador Attorney General Diego Garcia said Thursday that the Correa government was considering an appeal of the judge’s ruling.