The Obama administration has imposed its first-ever ethics policy on the Interior Department agency that oversees offshore oil and gas drilling, barring federal inspectors from dealing with companies that employ family members or friends.

The Bureau of Ocean Energy Management, Regulation and Enforcement imposed an ethics policy last week in response to the scandals that engulfed its predecessor, the Minerals Management Service.

Under the new policy, BOEMRE employees must report potential conflicts of interest and recuse themselves from inspecting companies that employ family members or close friends.

Newly hired inspectors are also barred from performing inspections or working with their former employers for two years after leaving the industry.

The new policy comes as the offshore drilling industry and its federal regulators have faced intense scrutiny in the wake of the Gulf of Mexico oil spill. It also follows two reports from Interior's inspector general that found MMS employees had inappropriate relationships with the companies they were regulating.

The inspector general found in May that MMS employees in Lake Charles, La., accepted meals and gifts from oil and gas companies, and one inspector admitted to using drugs. A separate 2008 report highlighted a scandal in the agency's Lakewood, Colo., office in which employees were found to have had sexual relationships with energy company executives and accepted gifts from them.

Mary Kendall, Interior's acting inspector general, said her biggest concern was the revolving door between industry and the regulatory agency. Inspectors and oil company employees have lived in the same communities all their lives and attended the same engineering schools, Kendall said, adding that their relationships took precedence over their jobs.

The former head of the beleaguered agency who resigned under White House pressure in May after BP PLC's blowout and oil spill echoed those same concerns late last month in her first public appearance since her resignation.

"The inspectors who accepted gifts had extensive social and community relations; they all live in the same towns," Liz Birnbaum, the former MMS head, told the presidential commission investigating the spill. "Offshore inspectors have to live along the Texas and Louisiana coasts, which are dominated by two industries: oil and gas and shrimping."

She said the only way to break the incestuous relationship between regulators and industry would be a thorough overhaul of regulations, inspection procedures and culture.

The new BOEMRE ethics policy is directed toward only the most clear-cut conflicts of interest. The new guidelines allow for casual relationships among rig workers and supervisors.

"Merely being acquainted with an individual who is employed on a facility/field/rig does not by itself require a district employee to be recused from official activities that relate to the facility where the individual works," the memorandum circulated to BOEMRE employees says.

Click here to read the new policy.