Minerals Case Decision Protested

By Derek Kravitz
Washington Post Staff Writer
Friday, September 19, 2008

The Interior Department has pulled some of its investigators off the Jack Abramoff corruption task force to protest the Justice Department's decision not to pursue charges against two government officials in the separate oil royalties scandal that surfaced last week.

Interior's inspector general, Earl E. Devaney, reported last week the results of a two-year investigation that found officials at the department's oil royalties office in Colorado had attended parties with oil and gas marketers, accepted gifts including ski trips, sports tickets and golf outings, and steered contracts to favored clients.

The royalties program, part of Interior's Minerals Management Service, collects billions of dollars in oil and natural gas from companies given contracts to drill offshore or on federal or Indian lands. Since 2006, the program has been subjected to multiple investigations for alleged mismanagement and conflicts of interest.

Yesterday, Devaney told the House Natural Resources Committee that he was disappointed that two now-retired employees -- former oil royalty office chief Gregory W. Smith and former associate director Lucy Querques Denett -- were not prosecuted.

Investigators allege that Smith, 56, was among a group of more than a dozen employees who took gifts from clients; was involved in illicit sexual relationships with subordinates; purchased cocaine at his office; and arranged improper outside consulting deals that allowed him to earn more than $30,000.

The inspector general's reports allege that Denett, 55, improperly arranged a million-dollar deal for two retired employees, both of whom have pleaded guilty to federal conflict-of-interest charges. Denett and Smith have declined to comment on the report.

"I would have liked to see a more aggressive approach," Devaney said of the Justice decision not to charge Smith and Denett. He said Justice officials "were aware" of his desire to have the pair prosecuted.

Devaney did not testify about the details of the dispute with Justice. Sources familiar with the matter said his office removed some of its people from the Abramoff case in protest. On Tuesday, Senate Judiciary Chairman Patrick J. Leahy (D-Vt.) and Sen. Ken Salazar (D-Colo.) sent a letter to the attorney general, asking why Smith and Denett were not prosecuted and asking that charges be filed against them.

Sources with knowledge of the case said a possible medical condition might have been a factor in the decision not to charge Denett. She told investigators she was going through a "very stressful personal issue" at the time of the alleged wrongdoing.

Justice spokeswoman Laura Sweeney declined to comment on the case yesterday. "The Department of Justice makes prosecutorial decisions based on the facts and the law," she said. "That policy was followed in this instance."

Devaney also testified yesterday that it is "probable" that his office would have found that taxpayers lost royalty revenue because of the scandal, but that investigators were hampered by contract files that were in "terrible shape" and because a group of Chevron employees refused to be interviewed.

Interior Secretary Dirk Kempthorne told the committee he was assured that the "behavior described in these reports no longer exists in these programs." He said the ethics office at the royalty program would be expanded.

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