The New York Times: Suits Say U.S. Impeded Audits for Oil Leases

EXTRACT: In two of the lawsuits, two senior auditors with the Minerals Management Service in Oklahoma City said they were ordered to drop their claim that Shell Oil had fraudulently shortchanged taxpayers out of $18 million.

THE ARTICLE

By EDMUND L. ANDREWS
Published: September 21, 2006

WASHINGTON, Sept. 20 — Four government auditors who monitor leases for oil and gas on federal property say the Interior Department suppressed their efforts to recover millions of dollars from companies they said were cheating the government.

The accusations, many of them in four lawsuits that were unsealed last week by federal judges in Oklahoma, represent a rare rebellion by government investigators against their own agency.

The auditors contend that they were blocked by their bosses from pursuing more than $30 million in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico.

“The agency has lost its sense of mission, which is to protect American taxpayers,” said Bobby L. Maxwell, who was formerly in charge of Gulf of Mexico auditing. “These are assets that belong to the American public, and they are supposed to be used for things like education, public infrastructure and roadways.”

The lawsuits have surfaced as Democrats and Republicans alike are questioning the Bush administration’s willingness to challenge the oil and gas industry.

The new accusations surfaced just one week after the Interior Department’s inspector general, Earl E. Devaney, told a House subcommittee that “short of crime, anything goes” at the top levels of the Interior Department.

In two of the lawsuits, two senior auditors with the Minerals Management Service in Oklahoma City said they were ordered to drop their claim that Shell Oil had fraudulently shortchanged taxpayers out of $18 million.

A third auditor, also in Oklahoma City, charged that senior officials in Denver ordered him to drop his demand that two dozen companies pay $1 million in back interest.

And in a suit that was filed in 2004, Mr. Maxwell charged that senior officials in Washington ordered him not to press claims that the Kerr-McGee Corporation had cheated the government out of $12 million in royalties.

On Wednesday, Interior officials denied that the agency had suppressed any valid claims and implied that the auditors simply wanted a share of any money recovered through their lawsuits.

“If these auditors believed there were fraud and or false claims on the part of the companies they were auditing, they should have followed the proper procedures,” the Interior Department said in a written statement. “Instead, they opted to pursue private lawsuits under which, if they prevail, they could receive up to 30 percent of the monies recovered from the companies.”

In defying their own agency, the Interior Department’s auditors sued the oil companies under a federal law, called the False Claims Act, that was created to allow individuals to expose fraud against the government. People who successfully recover money for the government in such cases are entitled to a portion. A losing company is required to pay triple the amount of recovered money as well as back interest — potentially more than $120 million in the cases brought by the auditors.

Destin Singleton, a spokeswoman for Shell, said the company had not seen the suits and could not comment. John Christiansen, a Kerr-McGee spokesman, said, “We believe the case is without merit and we are defending against it.”

In dollar terms, the suspected underpayments amount to a tiny fraction of the $8 billion in royalties that companies paid last year for oil and gas extracted from federal lands.

But the lawsuits come at a time when the Interior Department is already under fire from Congress, accused of covering up ethical lapses and managerial incompetence.

“These accounts, coming from the front lines, point a big red arrow at the large problem of taxpayers being stiffed,” said Senator Ron Wyden, Democrat of Oregon, who has been investigating the accusations.

“If it was one isolated instance, you could say that’s somebody who had a bad experience and was frustrated,” Mr. Wyden said. “But when you have three or four professional, nonpolitical, independent auditors all bringing the same message, that is too important to ignore.”

By any measure, the Interior Department under President Bush has placed top priority on increasing oil and gas production in the United States. Under its business-friendly agenda, the department has increased incentives for drilling in risky areas, has speeded approvals for drilling applications and has campaigned to open more coastal areas for oil exploration.

Lawyers who have specialized in lawsuits under the False Claims Act said they had never seen a group of government investigators use the law against their own agency.

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