Fuel theft alleged at Harbor Island

A former employee of a Harbor Island fuel depot is suspected of using his inside knowledge of a special pump code — along with his connections to people still employed by the depot — to steal more than a million gallons of fuel from the facility.

The former employee's alleged involvement, along with roles played by others, is detailed in a recently unsealed affidavit in support of a search warrant used to seize items from the ex-employee's Olympia home.

The IRS agent's affidavit also reveals that the federal government has assumed control of what had been a state investigation into the theft of nearly $3 million worth of fuel from the Harbor Island depot belonging to Texas-based Kinder Morgan Energy Partners, the largest independent terminal operator in the U.S. Federal investigators say the suspects ripped off not only Kinder Morgan, but also oil companies that owned the fuel, a fuel-transport company and consumers.

Five people have been identified as having conspired to steal the fuel, sell it to gas stations in Washington and launder the proceeds through bank accounts. No one has been charged, and a supervising prosecutor at the U.S. Attorney's Office in Seattle said Tuesday he did not know when charges might be filed.

The Seattle Times generally does not name suspects unless they have been charged.

The affidavit notes that earlier this year, two of the suspects, accompanied by their defense attorneys, gave statements to Port of Seattle Police detectives admitting their involvement and explaining how they pulled off the scam.

Fuel is delivered to Kinder Morgan via the Olympic Pipe Line system and also by barge. The fuel — including diesel and unleaded gas — belongs to oil companies.

Kinder Morgan's customers arrive in tanker trucks to fill up and deliver the fuel to retailers. Each truck driver is assigned an access card to enter the facility, and each customer is assigned a PIN number that allows the customer to operate the pumps and tracks the amount and kind of fuel.

The thefts occurred between 1999 and last year. Based on data provided by Kinder Morgan for a portion of that period — from December 2002 to August 2004 — investigators estimate that 1.14 million gallons were stolen. The total value is unknown, but investigators have found bank records detailing sales of stolen fuel totaling more than $2.9 million.

On average, 1.3 million gallons of fuel pass through Kinder Morgan's terminal every day, according to company spokesman Rick Rainey. As a result, the thefts of several thousand gallons here and there could easily escape detection, investigators said.

Kinder Morgan contacted Port of Seattle Police in September 2004 to report the thefts after an audit was done on the fuel depot's inventory-control system. The company noticed a correlation between the production of certain error reports and visits to the pump by a particular driver.

Error reports are generated when pumps are placed in a mode reserved for maintenance work and to calibrate the pumps. In that mode, anyone can dispense any amount of fuel without it being recorded by the inventory-control system, according to the affidavit.

The only thing recorded is an error report listing the time and date that the maintenance code — which places the pumps in maintenance mode — was entered. A limited number of people had access to the maintenance code, leading the company — and investigators — to focus attention on a particular driver.

The driver is described in the affidavit as having a "close relationship" with a former employee of the company that owned the Harbor Island depot before Kinder Morgan acquired it in 2001.

Kinder Morgan never changed the maintenance code after it took over, the affidavit states. Investigators say they believe the former employee provided the code to a driver friend, and that they conspired with others to pull off the fuel heist.

The former employee reportedly received half of the proceeds from the fuel sales, according to the affidavit.

Federal agents searched his Olympia residence last month, seizing tax returns, as well as mortgage and bank records. The Olympia man now has no known job or business office, yet he owns two late-model Chevrolet Silverados and a 2004 Chevrolet Suburban, according to Internal Revenue Service agent Silvia Reyes, who swore out the affidavit.

In addition, Randy Unruh, a recently retired State Patrol detective who worked on the case, said the man has built a baseball field on his property complete with dugouts. Unruh said the man was "obviously living a lavish lifestyle that he couldn't afford."

One reason the case was transferred to the U.S. Attorney's Office, Unruh said, is because of the federal government's ability to seize property purchased with proceeds from illegal activity. The state Department of Licensing is also on the trail of the alleged gas bandits, seeking about $850,000 to cover lost taxes, interest and penalties related to their fuel sales, according to licensing spokesman Brad Benfield.

The department is seeking that sum from the Olympia man, the driver and an associate of the driver. The driver and his associate worked for a company called General Transport, a subsidiary of RE Powell, a Grandview, Yakima County-based fuel distributor.

The two men used the company's equipment, including tanker trucks, to transport and sell fuel off the books, investigators said. In addition, they sometimes sold to their employer's customers, robbing RE Powell of revenue, investigators said.

There is no evidence to suggest the gas-station owners who purchased the fuel knew it was stolen, investigators said.

Consumers were also harmed because the fuel they purchased at the pump was generic gas. The customers thought they were purchasing a certain brand of gasoline with additives or detergents blended in, investigators said.

In addition to the Olympia man and the two former General Transport employees, the government has identified two Kinder Morgan employees who helped facilitate and cover up the thefts, according to the affidavit. Both of those employees have been fired, a company spokesman said.

Peter Lewis: 206-464-2217 or plewis@seattletimes.com