Article suggest banks could face liabilites for use of wrong coating

It is interesting to consider how far liabilities can extend – this report suggests these 15 banks could face charges due to the use of an untested coating on the pipeline. The main argument used in this report is that if it can be demonstrated that the financial intitutions were aware of the risks and had not taken sufficient action to remove the risk then they could incur liabilities. However, it is not clear from the article whether the banks were aware of the risks and how much weight should be given these concerns.

Financial Institutions undertake environmental and social due diligence risk assessments prior to lending to projects which aim to identify and reduce potential risks and put management systems in place to ensure ongoing risk management throughout the life of the project. This process can usually be expected to reduce their risk of exposure to this type of liability.

This also highlight the increasing expectation by third parties that Financial Insitutions will use their role as lenders to interogate the environmental and social dimensions of projects, and essentially act as guardians of the environment. This can be a fairly tall order considering the late stage at which they can be invited to participate in a deal, and they will generally be somewhat reliant on the management skills and openness of the project sponsor.

Fifteen major banks that financed the controversial Baku-Tbilisi-Ceyhan (BTC) oil pipeline have been warned that they could face court if the pipeline leaks. The banks, including Royal Bank of Scotland and ABN AMRO, would be liable if they had knowledge of a potential cause of pipeline failure, yet failed to act to remove the risk of pollution.

BP’s $3.3bn pipeline runs from Baku in Azerbaijan through Georgia to Ceyhan on Turkey’s Mediterranean coast.

Experts have testified that the anti-corrosion coating chosen by BP does not stick to the pipeline. Widespread peeling and cracking of the coating has already been reported in internal BP reports.

The participating banks could incur civil or criminal liabilities if a coating failure causes a leak. The letter informs the banks of reports documenting the extent of coating failure and puts them on notice of the potential civil and criminal liabilities that might arise if they fail to use their powers as lenders to take effective action to prevent pollution. It is an offence to “knowingly permit” a crime.


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