Presumably Neri made the body disappear. Michael, with his money and political influence, got the authorities to go along with "drowning."
I agree with Olivant about Connie--that scene with her and Michael in III where she talks about "poor Fredo" drowning had the look of rationalization, rather than conviction.


Ntra la porta tua lu sangu � sparsu,
E nun me mporta si ce muoru accisu...
E s'iddu muoru e vaju mparadisu
Si nun ce truovo a ttia, mancu ce trasu.