Chevron vs. Ecuador: The Battle Heats Up


First, Chevron posts videos it says show evidence of bribery and misconduct in the environmental case against it. Now, Ecuador fights back

Chevron (CVX) dropped a bombshell when it leveled charges of bribery and judicial misconduct in a $27 billion environmental lawsuit in Ecuador. But instead of causing a major political shakeup in Quito, the company now finds itself under attack from officials in the Ecuadoran capital.

The California-based energy giant released videos on Aug. 31 on its Web site that it says show Ecuadoran Judge Juan Nuñez confirming that the company will lose the high-profile case and that any appeal will be a formality. The tapes also show what Chevron claims are representatives of President Rafael Correa's ruling Alianza PAIS party discussing a $3 million bribe in exchange for remediation work after the verdict. Chevron has asked that the judge step down and his prior rulings be disqualified.

On Sept. 1, Ecuador's Office of the Solicitor General, the country's equivalent of an attorney general, released a statement saying it had received a letter from Chevron concerning the allegations but that "a cursory review of the heavily-edited tapes that Chevron posted to its website shows that, in some instances, Chevron's own translation of the Spanish into English is poor and, in other instances, misleading." Nuñez told the Dow Jones (NWS) news service that he believes the videos were manipulated and he took the meetings only as a favor to a friend. Chevron maintains that the videos were not manipulated and the translations are accurate.

The Solicitor General's office said it would consider "any and all evidence that Chevron contends supports its contention of impropriety" but noted that Chevron's decision to air the evidence on the Internet rather than send it to the Ecuadoran government raises "some question as to Chevron's intentions."

"Intent to Hurt Ecuador's Prestige"

Meanwhile, President Correa's chief legal adviser, Alexis Mera, released a statement on Aug. 31 saying he believes the videos were recorded illegally and that it is Chevron who should be investigated. "Chevron, through its lawyers, are benefiting from a crime, which is recording conversations without authorization, with the intent to hurt Ecuador's prestige in the event of a judgment adverse to them, and for this they should face Ecuadoran justice," Mera said.

Chevron Executive Vice-President Charles A. James fired back on Sept. 2, saying Mera is mentioned on the tapes and "as legal advisor to President Correa, Mr. Mera must recognize that his statements to the media only raise further concerns of prejudgment and government involvement in the trial."

The case, now 16 years running, involves claims by indigenous people in Ecuador that Texaco dumped billions of gallons of contaminated wastewater in the rain forest when it produced oil in the country for three decades. Texaco stopped producing oil in Ecuador in 1990. Chevron, which acquired Texaco in 2001, maintains that Texaco spent some $40 million on cleanup operations and had an agreement with the government that state-owned oil company Petroecuador would pay for any additional cleanup work. Chevron argues that any damage as a result of Texaco's operations was addressed by the $40 million, which cleaned up 133 of 231 contaminated sites. According to the plaintiff's attorney, there were 916 sites, and Texaco "touched" only 16% of them.

The case has been closely watched because of both the potential size of the verdict and precedents it might set for U.S. companies facing legal battles overseas. Chevron investors also worry the company may get stuck with billions of dollars in damages.

Recorded Meetings with Judge Nuñez

Chevron claims it had no participation in making the videos, which were secretly recorded in May and June of this year by two businessmen, Diego Borja, a native Ecuadoran who has worked as a Chevron contractor, and Wayne Hansen, an American businessman it says has no connection to the company. Chevron claims the men initially approached a friend of Judge Nuñez seeking remediation work. The friend directed them to the Alianza PAIS party official and later coordinated two meetings with the judge.

Steven Donziger, the New York City attorney who filed the case against Texaco in 1993 and has continued to pursue it to this day, said he believes the timing of the videos is suspicious, with Judge Nuñez expected to deliver a verdict this fall and with a new, unflattering documentary about the case called Crude opening on Sept. 9 in New York.

Donziger has called on Chevron to make Borja and Hansen available for media interviews. The company says it will not disclose their whereabouts out of concern for their safety. "It's not Borja and Hansen that are on trial here," said Kent Robertson, a Chevron spokesman. "The judge compromised himself." Robertson says the company would "facilitate a connection between them and any appropriate parties" but has not been contacted by anyone in Ecuador about speaking with the men.

In addition to posting the videos on its Web site and on YouTube.com, Chevron has paid for a sponsorship on Google (GOOG) so that a link to the video appears on searches for the subject of Chevron and Ecuador. "We have been making everything public," Robertson says. "We believe public disclosure will encourage deeper investigation in Ecuador."

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau. Smith is BusinessWeek's Mexico bureau chief.

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