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Criminal probe of oil spill to focus on 3 firms and their ties to regulators

By Jerry Markon
Washington Post Staff Writer
Wednesday, July 28, 2010; A01

A team of federal investigators known as the "BP squad" is assembling in New Orleans to conduct a wide-ranging criminal probe that will focus on at least three companies and examine whether their cozy relations with federal regulators contributed to the oil disaster in the Gulf of Mexico, according to law enforcement and other sources.

The squad at the FBI offices includes investigators from the Environmental Protection Agency, the U.S. Coast Guard and other federal agencies, the sources said. In addition to BP, the firms at the center of the inquiry are Transocean, which leased the Deepwater Horizon rig to BP, and engineering giant Halliburton, which had finished cementing the well only 20 hours before the rig exploded April 20, sources said.

While it was known that investigators are examining potential violations of environmental laws, it is now clear that they are also looking into whether company officials made false statements to regulators, obstructed justice or falsified test results for devices such as the rig's failed blowout preventer. It is unclear whether any such evidence has surfaced.

One emerging line of inquiry, sources said, is whether inspectors for the Minerals Management Service, the federal agency charged with regulating the oil industry -- which is itself investigating the disaster -- went easy on the companies in exchange for money or other inducements. A series of federal audits has documented the MMS's close relationship with the industry.

"The net is wide," said one federal official who spoke on the condition of anonymity because he was not authorized to speak publicly.

The Justice Department investigation -- announced in June by Attorney General Eric H. Holder Jr. and accompanied by parallel state criminal probes in Louisiana, Mississippi and Alabama -- is one of at least nine investigations into the worst oil spill in U.S. history.

Unlike the public hearings held last week in Kenner, La., by a federal investigatory panel, the criminal probe has operated in the shadows. But it could lead to large fines for the companies and jail time for executives if the government files charges and proves its case.

Justice Department officials declined to comment Tuesday. Holder, in an interview with CBS News this month, confirmed that investigators are conducting a broad probe. "There are a variety of entities and a variety of people who are the subjects of that investigation," Holder said.

In an additional avenue of inquiry, BP disclosed in a regulatory filing Tuesday that the Justice Department and the Securities and Exchange Commission are looking into "securities matters" relating to the spill, although no more details were included.

Scott Dean, a spokesman for London-based BP, said the company "will cooperate with any inquiry the Justice Department undertakes, just as we are doing in response to other inquiries that are ongoing."

Brian Kennedy, a spokesman for Transocean, a former U.S. firm now based in Switzerland, declined to comment, as did Teresa Wong, a spokeswoman for Houston-based Halliburton.

Halliburton informed its shareholders about the Justice Department probe in its July 23 quarterly report to securities regulators. It also noted that the department warned the company not to make "substantial" transfers of assets while the matter is under scrutiny.

The probe is in its early stages, with investigators digging through tens of thousands of documents turned over by the companies, beginning to interview company officials and trying to determine the basics of who was responsible for various operations on the rig.

Although lawyers familiar with the case expect that environmental-related charges -- which have a low burden of proof -- will be filed, some doubted that investigators can prove more serious violations such as lying or falsifying test results.

"That's hard to prove," said one lawyer, who spoke on the condition of anonymity because details of the investigation are not public. "It's hard to show that somebody who could have died on the rig was malicious and reckless and intentionally did something that jeopardized their own life."

The emerging focus creates potentially awkward interactions on several levels. Investigators are probing companies, especially BP, which the government has been forced to work with in cleaning up the oil that cascaded into the gulf. And the former Minerals Management Service, which sources said has attracted the attention of criminal investigators, is helping to lead the federal panel that conducted last week's hearings in Louisiana.

Federal auditors have in recent years documented a culture at the MMS in which inspectors improperly accepted gifts from oil and gas companies, moved freely between industry and government and, in one instance, negotiated for a job with a company under inspection.

After the most recent investigation was released in May, Interior Secretary Ken Salazar said he had asked his department's acting inspector general, Mary Kendall, to expand her inquiry to include whether MMS failed to adequately inspect the Deepwater Horizon rig or enforce federal standards.

One law enforcement official said criminal investigators will look for evidence that MMS inspectors were bribed or promised industry jobs in exchange for lenient treatment. "Every instinct I have tells me there ought to be numerous indictable cases in that connection between MMS and the industry," said this official, who spoke on the condition of anonymity because the investigation is unfolding.

Melissa Schwartz, a spokeswoman for the former MMS (now called the Bureau of Ocean Energy Management, Regulation and Enforcement), declined to comment.

FBI agents and other investigators are working with prosecutors from the environmental crimes section of the Justice Department, along with local U.S. attorney's offices. Officials would not provide details about the new squad starting in the FBI's New Orleans office. Sources said it is known internally as "the BP squad," though it will examine all companies involved with the Deepwater rig.

After learning what is in the thousands of documents, investigators plan to "start trying to turn one witness against the other, get insider information," said the law enforcement official.

The official said that no decisions on criminal charges are imminent and that "you can bet on it being more than a year before any kind of indictment comes down."

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