Official: Why weren't managers charged in oil-sex scandal?

McClatchy NewspapersSeptember 18, 2008 

WASHINGTON — The Interior Department's watchdog criticized the Justice Department on Thursday for declining to prosecute the managers of an oil- and gas-royalty program that's been tainted by allegations of illicit sex, drug use and taking favors worth thousands of dollars.

The Justice Department prosecuted two employees from the Minerals Management Service, but Inspector General Earl Devaney said he didn't know why the department's lawyers didn't act on his recommendation to prosecute two high-ranking officials who've since retired.

"I would have liked a more aggressive approach, and I would have liked to have seen some other people prosecuted here," he said during a hearing before the House of Representatives' Natural Resources Committee.

Last week, in three reports, Devaney implicated a dozen current and former employees of the Minerals Management Service in inappropriate or unethical relationships with industry officials. He described "a culture of substance abuse and promiscuity'' in the Royalty in Kind program, in which the government forgoes royalties and takes a share of the oil and gas for resale instead. From 2002 to 2006, nearly a third of the RIK staff socialized with and received gifts and gratuities from oil and gas companies.

"Simply stated, the MMS employees named in these reports had a callous disregard for the ethical rules by which the rest of us are required to play," he told committee members.

After cutting deals with prosecutors, former MMS employees Jimmy Mayberry and Milton Dial pleaded guilty to creating a lucrative MMS contract to benefit them both upon retirement.

Devaney also recommended that the Justice Department prosecute RIK's former Denver office director, Gregory Smith, and the former associate director of the Minerals Revenue Management office, Lucy Dennet.

The reports accuse Smith of having sex with two subordinates and improperly accepting $30,000 from a private company for marketing its services to oil and gas companies.

Dennet is accused of helping Mayberry create the contract he was awarded after his retirement.

The Justice Department hasn't explained why it declined to prosecute them.

"I've been doing this for a long time, and this isn't the first time I've been disappointed by decisions made over there," Devaney said of the Justice Department. "It probably won't be the last."

Department spokeswoman Laura Sweeney said department lawyers made prosecutorial decisions "based on the facts and the law."

"That policy was followed in this instance," she said, declining to elaborate.

Although his investigation is closed, Devaney said he felt that it wasn't complete, partly because Chevron had hired lawyers for six employees implicated in the scandal who later refused to be interviewed by the inspector general. A former Shell employee also declined to cooperate. Devaney charged that Chevron, Shell, Gary-Williams Energy Corp. and Hess Corp. gave gifts to RIK staffers.

Don Campbell, a Chevron spokesman, denied that his company was uncooperative, saying that it had provided 13,000 pages of documents. Campbell acknowledged that all six employees remain with the company.

"The report does not say, because it cannot say, that Chevron failed to follow any of the Royalty in Kind program rules and regulations," he said.

Rep. George Miller, a Democrat from California, said he was disturbed that Chevron continued to do business "as if nothing happened."

"The same people are on the front lines holding on to the same relationships," he said.

Interior Secretary Dirk Kempthorne, who wasn't leading the department at the time, told lawmakers that he planned to hire an ethics official to monitor the program and was considering firing some employees.

Republicans on the House committee downplayed the scandal as an isolated problem involving few employees.

It isn't the first time that the Interior Department has been criticized for its handling of royalty collections. During the Clinton administration, Interior officials failed to catch a loophole in leases that allowed oil companies to escape paying billions of dollars in royalties. The Bush administration didn't close that loophole for several years.

Last week, McClatchy reported that senior Justice Department officials had blocked the U.S. attorney in Colorado from supporting a whistleblower's suit last year, jeopardizing the government's prospects for recovering as much as $40 million from a major oil company for alleged underpayments of royalties.

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McClatchy Newspapers 2008

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