The appointment of J. Steven Griles to a top position at the Department of Interior was a "train wreck waiting to happen" because officials were unable to deal with complex ethical issues raised by his relationship with former clients, an internal report concluded on Tuesday.

An 18-month investigation by Interior Inspector General Earl E. Devaney found numerous instances in which Griles had questionable dealings with former clients in the oil, gas and coal industry. At the same, he continued to receive $284,000 a year for work he had done for the industry before joining the Bush administration in July 2001.

As a condition of accepting the $1 million-plus payment, Griles pledged to recuse himself from decisions that may affect old clients. Yet Devaney's 146-page report detailed cases where the department's number two in command inserted himself in situations that could have benefited private interests.

"Mr. Griles' lax understanding of his ethics agreement and attendant recusals, combined with the lax dispensation of ethics advice given to him, resulted in lax constraint over matters in which the Deputy Secretary involved himself," the report stated.

Despite the critical language, Devaney said there was no evidence of wrongdoing by Griles. With the possible exception of two cases, all of his dealings were within the bounds of the law, the report noted.

However, Devaney laid blame on ethics and legal officials for failing to provide "rigorous ethics advice" to Griles and other top political appointees. "The wholesale failure of the ethics program at the department emanates from a fundamentally flawed design crafted over time by a cast of negligent architects," he wrote.

One of the cases mentioned in the report centered over a coalbed methane drilling plan that the Northern Cheyenne Tribe of Montana opposes. In April 2002, Griles contacted the Environmental Protection Agency after that agency gave the worst rating possible for the proposal.

The Office of Government Ethics, an independent federal agency, suggested that the contacts may have been illegal because three of the six companies seeking to mine the Powder River Basin in Montana and Wyoming were former clients of Griles.

Griles defended his involvement by stating that they were reviewed by an Interior attorney who had been taken off the trust fund case. But the attorney, Tim Elliott, told investigators that he usually leaves such decisions up to top officials "under the premise that they themselves will understand better whether or not a given matter will present a possible appearance of impropriety," the report said.

In the second case, Griles organized a dinner at the home of his former business partner, Marc I. Himmelstein, who continued to represent the drilling companies. Two top Interior officials -- Kathleen Clarke, director of the Bureau of Land Management, and Rebecca Watson, assistant secretary for land and minerals management -- directly responsible for development in the basin attended the April 2002 dinner.

According to Griles, the dinner was held so that the top officials could get acquainted with each other. Former assistant secretary Neal McCaleb, who would have had a trust responsibility to the Northern Cheyenne Tribe, was not invited, based on records reviewed for the report. Griles defended the event as a strictly social one where no business was discussed.

Griles ended up reimbursing Himmelstein for the dinner -- $30 a head for a total of $180 -- after Interior attorney Elliott found out about it and raised concerns. But Devaney noted that Himmelstein was a "prohibited" contact for Griles due to their financial relationship.

Interior Secretary Gale Norton responded to the report by saying that Griles has already acknowledged he should have used better judgment in organizing a dinner with members of the department. Since then, he has taken a number of steps to strengthen the ethics screening and oversight within his office to avoid a similar occurrence."

Despite Devaney's referral of the two cases for possible action, Norton said the report "closes the issue."

Griles also said that he "glad this matter is behind me [so] we can continue to work to advance our initiatives to provide recreational opportunities for the public and protect and conserve our land and resources responsibly." Griles was once a visible figure in Indian Country for his work on the trust reform task force but has dropped to low-profile since late 2002.

An environmental group that has been highly critical of Griles and was instrumental in uncovering his contacts with former clients called the report "damning." Kristen Sykes, of Friends of the Earth, said "it uncovers regular and consistent breaches of Griles' ethics agreements and, more importantly, blatant violations of the public's trust. If this White House is serious about ethics and accountability, Griles should be dismissed immediately."

Read the Report:
J. Steven Griles Investigation (March 2004)