Video: Fleecing of America

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updated 9/28/2006 10:02:54 PM ET 2006-09-29T02:02:54

Oil companies earn billions of dollars pumping oil from federal lands and are required to share the wealth with taxpayers through royalty payments.

Bobby Maxwell spent 20 years as an Interior Department auditor, policing oil industry records.

"It was common to run across where royalties were underpaid," he says.

Maxwell says, in 2003, he concluded that Kerr-McGee had shortchanged taxpayers out of about $10 million and prepared an enforcement order to collect the money. But he says superiors stopped him.

"I was told the order definitely would not go out," he says.

Maxwell is now one of four past and current Interior Department auditors who have taken the extraordinary step of suing more than 20 oil companies on behalf of taxpayers. The auditors claim the companies cheated taxpayers out of tens of millions in royalties and that their bosses at Interior refused to collect it — part of what they claim is a culture of not enforcing the law.

"We were walking away from many millions of dollars that belonged to the American taxpayer, and I felt strongly that I had a moral obligation," says Maxwell.

The Interior Department's own inspector general also recently criticized the agency's culture.

"Simply stated, short of a crime, anything goes at the highest levels of the Department of the Interior," says Inspector General Earl DeVaney.

In the last few years, royalty money collected from oil companies through enforcement actions has plummeted. For a decade, these collections averaged $193 million a year. But since 2002, that's dropped to $48 million.

The Interior Department says the earlier figures were inflated, partly because of money from successful lawsuits. 

Officials claim Maxwell's effort to collect more from Kerr-McGree was blocked because it didn't comply with federal regulations, and note that Maxwell would profit personally if he wins his lawsuit. Kerr-McGee disputes Maxwell's figures and says his "suit is without merit."

Interior officials emphatically deny that they are protecting the oil companies.

"We collect every penny, not a penny more, not a penny less," says Johnnie Burton with the Interior Department. "We collect what those companies owe." 

However, the department admits that because of a mistake in oil leases signed in 1998, taxpayers have lost some $1.3 billion in royalties. Interior officials say they have no legal recourse and therefore have no plans to recover that money — which a senior House Republican calls absurd.

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