Helping Big Oil Companies Hide Billions From Taxpayers

New Bush Scandal Helping Big Oil Companies Hide Billions From Government at Taxpayer Expense
BuzzFlash
Wednesday 24 May 2007

Corruption within the Department of Interior may have allowed oil companies to improperly save billions at the expense of the taxpayers. The Department's Inspector General has already made at least two criminal referals to the FBI and the Justice Department, and Congressional Democrats have launched several investigations and introduced new legislation to fix the problem.

In a nutshell, oil companies leasing federal land to drill for oil are required to pay the government royalties based on a percentage of their sales. But under the Royalty-in-Kind program, the companies can pay in the form of oil and gas instead of cash. The problem is that oil prices have increased more than the value of the oil and gas royalty revenues being recieved, meaning that the oil companies are managing to withhold a growing amount of their profits from Uncle Sam.

As you might guess, Royalty-in-Kind was proposed and remains supported by the oil industry, and Bush implanted officials with deep ties to the oil industry in charge of the agency responsible for enforcing the program, the Minerals Management Service (MMS).

In light of the growing scandal, MMS Director Johnnie Burton has already announced that she will be retiring by the end of May. Burton started an oil exploration business before becoming a staunch Republican politician in Wyoming, where she developed ties with Dick Cheney. Greg Smith became the new head of MMS, but he just announced his own sudden retirement Tuesday.

"It appears this Administration uses retirement like some perverse witness protection program," said Rep. Nick Rahall. "Get them out of the spotlight and off the list of in-the-know folks who could provide damaging evidence. Instead of Watergate's 'follow the money,' the Bush Administration has "follow the retirements.'"

Rep. Rahall is chairman of the House Natural Resources Committee, which held a hearing Wednesday on the Energy Policy Reform and Revitilization Act aimed at eliminating the oil royalty corruption and loopholes, among other things.

Much of the controversy surrounds a mistake inadvertantly created during the Clinton Administration that went unaddressed and not publically acknowledged until 2006. MMS Director Burton claimed at the time that she had only recently discovered the problem, but midlevel officials spotted the mistake in 2000 and the Interior Department's Inspector General and even top Republicans say she either knew or should have known about the mistake as early as 2004.

The delay allowed oil companies to save more money and prevented the chance for easier lease renegotiations since energy prices were much lower at the time.

But wait, there's more! A former Interior auditor-turned-whistleblower revealed that he was ordered by senior Washington officials to drop a case against the Kerr-McGee Corporation for cheating the government out of at least $12 million in royalties. A jury found the company guilty of underpayment, though the case remains pending in federal court on appeal.

MMS Director Burton "is a person who apparently never saw an oil and gas royalty payment audit she liked," Rep. Rahall said Wednesday. "Under her reign, the average number of annual audits conducted plummeted from 540 to 144. And left on the wayside were billions of dollars in royalty payments owed to the American people." As MMS Director, Burton was responsible for auditing participating companies.

The Bush Administration (and the oil industry) want the percentage of oil and gas royalties to double by 2009 and continue to insist that the Royalty-in-Kind scheme is simpler and more efficient because it reduces accounting and transaction efforts. But it is this very reduction in reporting through a de facto "honor system" that has allowed oil companies to keep more money while also preventing the Government Accountability Office from being able to evaluate whether the program is actually profitable to the government.

"The fact that the Interior Department would now take steps to expand this program defies logic," Senator Ron Wyden (D-OR) said.

Evidence that four top Interior officials were paid as consultants for oil companies hoping for contracts inspired one of the two criminal investigations. With indictments pending and more Congressional hearings planned, there is no telling what else will be revealed in this scandal.