Rampant Fraud, Self-Dealing Alleged in Alaska Native Corporation

SAXMAN, Alaska -- When the oil boom came to Alaska, Congress promised new economic opportunities for native peoples like the Cape Fox Tlingit.

The Tlingit had wrested a subsistence life from the harsh coasts of southeast Alaska for thousands of years, only to see their villages destroyed, their resources exploited and their population wiped out by disease when white settlers came in the 19th century.

In 1971, Congress passed a law intended to right the historic wrongs and compensate natives for construction of a new oil pipeline through their ancient lands. The legislation allowed tribes and villages to form Alaska Native Corporations that would build businesses and pay cash dividends to the native shareholders.

In the 1980s, Congress gave the ANCs special privileges in a federal program that sets aside contracts for small minority businesses. Through the program, ANCs have received more than $10 billion in federal contracts in the last two years alone.

A ProPublica investigation found that very little benefit from these contracts has trickled down to native shareholders. Instead, much of the money has ended up in the hands of outside contractors, consultants and Washington lobbyists who earned generous compensation for themselves and, in some cases, for their families.

Perhaps nowhere have the abuses been more startling than in Saxman, where the Cape Fox Corporation represents 300 Tlingit natives. While other ANCs have been taken advantage of by one consultant or in a single subsidiary, lawsuits, investigations and audits allege fraud and self-dealing in five of the seven companies Cape Fox had in the program.

Cape Fox's experience shows how outsiders can easily co-opt the privileges afforded to ANCs, siphoning off large sums from taxpayer-funded contracts for themselves. The natives had almost no involvement or oversight of the companies. And when they went to regulators seeking help, they were turned away, told that the law didn't allow the agencies to intervene.

A new analysis by ProPublica quantifies the extent to which ANCs have come to benefit from the minority contracting set-asides, which are part of the Small Business Administration 8(a) Business Development Program -- a civil-rights era effort to help businesses gain experience.

While contracting dollars to 8(a) firms grew nearly fivefold from 2000 to 2009, money to ANC companies in the program increased more than twentyfold -- from $280 million to $5.7 billion -- thanks to a rule that allows them to obtain no-bid contracts of unlimited size.

Where they once accounted for just 5 percent of the contracting dollars, they now make up 22 percent, even though there are only 100,000 Alaska natives in the United States.

A few years ago, Cape Fox seemed like one of the effort's biggest successes. Government agencies have awarded its subsidiaries more than $600 million in contracts repairing military bases, providing doctors to hospitals and teaching Marines how to ride motorcycles. In just five years, from 2003 to 2008, revenue increased from $8 million to more than $200 million.

Those contracts earned outside consultants to Cape Fox millions in fees. But in Saxman, the federal dollars brought few jobs, no increase in the regular $20 per share dividend, millions of dollars in debt and a federal criminal investigation by the Defense Department. A ProPublica review of Cape Fox's annual reports found that from 2003 to 2008 the corporation lost $1.2 million.

The annual reports aren't public, but ProPublica was able to obtain them along with resolutions, meeting minutes and internal reports. ProPublica also reviewed thousands of pages of court records from Virginia to Alaska. Taken together, the documents tell a story of how everyone seemed to benefit from the Alaska native contracts except the Tlingit natives.

What has been most striking about the failings of the ANC program is its imperviousness to reform. Over the years, a stream of reports by government auditors, congressional investigators and most recently The Washington Post [2] chronicled how outsiders have capitalized on ANCs. Each time, proposed reforms were derailed. But little has been done to address the problems.

Statistics gathered by a Senate subcommittee last year show that the average shareholder receives just $615 in benefits a year from the contracts.

Even among those stories and reports, the Cape Fox Corporation stands out. Marilyn Blair, the granddaughter of the last chief of the Cape Fox Tlingit tribe, says she and the other Cape Fox Corporation shareholders were 'so gypped' by the former CEO’s venture into government contracting. (Michael Grabell/ProPublica)

Marilyn Blair, the granddaughter of the last chief of the Cape Fox Tlingit tribe, says she and the other Cape Fox Corporation shareholders were 'so gypped' by the former CEO’s venture into government contracting. (Michael Grabell/ProPublica)

In one instance, a California businessman amassed a portfolio of construction companies in the names of relatives and friends and reaped hundreds of millions of dollars in contracts, charging Cape Fox with $16 million in consulting fees.

In another, an audit found that the non-native manager of a subsidiary in Manassas, Va., used money made in Cape Fox's name to pay 90 percent of his consulting firm's expenses, buy condominiums and pay salaries to his wife, parents, daughter and others.

And in Virginia, a jury recently concluded that consultants with a history of making money from ANCs had used a Cape Fox health-staffing firm to improperly enrich themselves.

Once again, despite what seemed like good intentions, the Alaska natives were left behind.

On an August afternoon, the granddaughter of the last chief of the Cape Fox Tlingit tribe peered through the window of an empty, red-and-beige building off the South Tongass Highway. She stepped back on the gravel drive and took a drag from a Camel 99.

"This is where our shareholders are supposed to be trained in information technology and putting things together and getting good-paying jobs and their lives are supposed to improve," said the woman, Marilyn Blair.

The building planned as a technical center now stands as a monument to the failures of their government contracting venture.

"Those 8(a)s were supposed to make us rich," Blair said. "You say we're making $250 million. Where does it go? It sure doesn't go into Cape Fox shareholder pockets. It goes into the salaries of the people who run the 8(a)s and then all the monthly expenses and loans. By the time that's done, there isn't anything left.

[SNIP] Read the rest at http://www.propublica.org/article/rampant-fraud-self-dealing-alleged-in-alaska-native-corporation

Actually, the opening premise of the story is variously wrong or misleading.

The 19th century white settlers (one is lead to believe by omission) not were Americans, but were actually Russians from Russia.

The 1971 law was not "intended to right the historic wrongs and compensate natives", but passed at Nixon's behest to settle the legal questions surrounding the status of the Indians in AK, since, unlike their Lower 48 counterparts, were not under Treaties with the US government. There was at the time Treaty Law, but Aboriginals (as the AK tribes were called ) had no extra legal rights, but claimed them.

Nixon's aim, as I recall, was to bring all the scattered tribes in the US fully into citizenship, ending their separate ward status, reservations, and the Treaties. That is, he wanted to make them all equal in law to everyone else.

I cannot recall how (in case law) the former Aboriginal tribes came to their present Native Corporation status, but the upshot was that for certain compensations, they would make no further claims in law concerning their "rights".

Like all good intentions foisted off on us by the government, no good came out of it for anyone:

The native corporations were managed by the same families which had ruled the bands under Aboriginal status, leading to the abuses related in the story. They were simply either unprepared or unwilling to manage;

The Lower 48 Treaty Tribes ceased on the rulings to further their own interests, and so we got the legal concept that Indians were "created" in the US by the Great Spirit (upon which rests ALL their claims), casinos (whose funding and revenue remains secret), Special Masters (governing use of natural resources), Treaty "rights" trumping Constitutional Rights, continuation of the nontaxable reservation income, and so on.

All of this lead to widespread abuse by the ruling families, inter-tribal battles for control of the windfall monies, wholesale destruction of natural resources (salmon and timber) for individual profit, the destruction and criminalizing of the West Coast commercial salmon fisheries and fishermen (and their families as well as the lose of many lives), the continued use of non-ruling family tribal individuals as examples of poverty (requiring still more money to pour into the tribes to be use by the ruling families as they saw fit - new houses and such for themselves). The list of abuses goes on and on...

We all lost.

PS: all of this "wonderfulness" was brought to you and me by the same people who run the Democratic Party today: G. Soros, Peter Lewis, the Tides Foundation, the Pew Foundation, the Ford Foundation., the Audubon Society, the Sierra Club, various land preservation groups, and other NGOs.

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