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Bankruptcy Loophole Costs Taxpayers Billions in Toxic Cleanup Costs

For Immediate Release: April 11, 2006

Contact: Craig Engelking, 360.561.7701


Report Shows Asarco Could Shed Up to $1Billion in Pollution Liabilities, Including $45 Million in Tacoma, by Declaring Chapter 11

TACOMA—The Sierra Club today commended Senator Cantwell for her efforts to close a loophole in the nation's bankruptcy laws that allow companies with significant pollution liabilities to evade cleanup costs. A special investigative report by the Sierra Club contends that one company, the American Smelting and Refining Company (Asarco), could legally shift $500 million to $1 billion in cleanup responsibilities to taxpayers by reorganizing under the federal Chapter 11 Bankruptcy Code.

"Under the existing law, companies like Asarco can get off the hook for their toxic pollution by declaring Chapter 11," explained Marilyn Berlin Snell, who directs Sierra's Investigative Journalism Project. "Not only do taxpayers end up holding the bag, but it takes far longer for the contaminated sites to get cleaned up, and that puts more people at risk."

Asarco, a massive copper conglomerate with a presence in more than 20 states, has a toxic legacy that is all too familiar in communities where the company has done business. Its name is attached to 19 Superfund sites around the country, including contaminated areas in Tacoma and Everett, Washington. At the time it filed for bankruptcy last summer, Asarco faced more than 100 civil environmental cases.

Asarco is still responsible for cleaning up its Ruston smelter site near Tacoma and for cleaning up lead and arsenic on hundreds of adjacent residential properties and toxic sediments in Commencement Bay. Estimates place the cost of clean up in excess of $45 million. The Washington Department of Ecology estimate 550 residential properties are contaminated with arsenic in Everett. By exploiting the loophole in the bankruptcy law, Asarco would force taxpayers to pay these clean up costs.

“First Asarco leaves us with a toxic legacy across our region. Now they’re trying to leave us with the bill to clean it up,” said Bliss Moore, Chair of the Sierra Club’s Tatoosh Group in Tacoma. “We commend Senator Cantwell for introducing legislation to close this loophole. Asarco created this mess, they need to clean it up,” he added.

By declaring Chapter 11, however, Asarco puts all of those cases on hold. It also means that creditors – in this case EPA and the states demanding that Asarco clean up its polluted sites ­– get in line to collect what they are due. They are unlikely to collect much, however, since Asarco had the foresight to sell off its most valuable assets to a shell company, set up by its parent Grupo Mexico, before the bankruptcy filing. The total cost of Asarco's cleanup liabilities is estimated at $500 million to $1 billion.

In 2003, the Government Accountability Office (GAO), at the behest of Senator Maria Cantwell, looked into whether the existing bankruptcy laws were sufficient to prevent companies from shirking their cleanup responsibilities. While the GAO was unable to determine the extent of abuse, it confirmed that the law was ripe for exploitation and outlined steps that the Environmental Protection Agency could take with its existing authority to minimize the problem. Specifically, it called on EPA to require that businesses handling hazardous substances prove they will clean up potential spills or contamination before the agency issues a permit.

Some states have taken matters into their own hands. After a mining company, Pegasus Gold, declared bankruptcy and stuck the Montana taxpayers with a $40 million cleanup bill, state officials moved to require mining companies to raise the bond amounts they held for clean up purposes from 50 to 10,000 percent.

"Even with the bankruptcy loophole, there should be a safety net to protect taxpayers and ensure that sites get cleaned up quickly," stated Ed Hopkins, director of the Sierra Club's Environmental Quality Program. He explained that ever since Congress allowed the "polluter-pays" provision of the Superfund program to lapse in 1995, the trust fund that should be available to pay for orphaned toxic waste sites has dried up. The GAO estimates that it will cost on average $140 million to remediate each of the 142 largest Superfund sites, for a total cost of taxpayers of almost $20 billion.

More information, including the Sierra Club investigative report, is located on the Sierra Club website at www.sierraclub.org/goingforbroke.