This week we sit down with ProPublica’s Jennifer LaFleur and Michael Grabell to discuss the investigation into Alaska Native Corporations (ANC). LaFleur and Grabell investigate how much of the revenue ANC’s produce ends up in the hands of outside contractors, consultants, and Washington lobbyists.
“There a lot of outside people who are enriching themselves, in some case at the expense of Alaska natives,” says Grabell of the exploits.
Additionally, Lafleur has compiled the most comprehensive database of searchable ANC documents ever put together online.
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To listen to the podcast, scroll to the bottom of this post.
Alaska Native Corporations
Hi, I'm Mike Webb, and welcome to the ProPublica podcast. This week, Michael Grabell and Jennifer Lafleur published an investigation into Alaska Native Corporations, and how much of the revenue they produce ends up in the hands of outside contractors, consultants, and Washington lobbyists.
Grabell often writes about the stimulus and aviation issues and Jennifer is our Director of Computer Assisted Reporting. Thanks for joining us.
Mike: Jen, can you tell me what the intent of Congress was when they created the Alaska Native Corporations?
Jen: At the time that the Alaska Claims Settlement Act was passed, there had been a lot of activism in the native community regarding land rights. The native community was very concerned that they were going to lose access to their traditional land that they used for fishing and hunting, especially with the discovery of oil in Prudoe Bay and the desire to build a trans-Alaska pipeline. So the act, which was passed in 1971, gave set allotments of land to the 12 regional corporations.
Mike: OK. And then there was an additional law passed in the '80s, where Congress gave special privileges for small minority businesses, is that correct?
Jen: The SBA's small minority business plan or disadvantaged business plan gave some opportunities for no-bid contracts, and contracting for small minority businesses. What it did with Alaska native corporations is to step that all up, and gave them opportunities beyond what the other companies got. So other participants were limited to $3.5 million in contracts, ANCs had no limit. Other participants went through the program once, graduated on as now they're successful businesses and can do work on their own. ANC’s could continue to set up new companies, new subsidiaries and have them continue to go through the program and take advantage of the contracting advantage that that program offered.
Mike: OK, then, Michael, how are these programs working out over all? Are they serving their purpose?
Michael: The result of all these exemptions now is that the Alaska Native Corporations have come to really dominate this ADA program. The last two years, they've received more than $10 billion in contracts. So that's raised a lot of questions about who is getting the benefits. A number of investigations, including one by Senator McCaskill,[D-MO] last year, and then the research we've done at ProPublica, shows that very little of the money actually trickles down and gets back to the Alaska natives. And that a lot of outside contractors and consultants are siphoning off the money before it ever gets down to where it can be distributed and do the most good.
Mike: Why don't the benefits reach the people?
Michael: What we found was there are so many layers of who benefits. Because the Alaska villages where a lot of the natives live are so remote and so isolated, they can't do the work there. It's hard to get the work there. They don't have the skills and experience in a lot of cases. So they've sort of created this system where there are consultants who actually manage the companies, where there are non‑native CEO’s who then run the corporations. In addition to that, they then subcontract out a large government contractor who does have the experience to do the work and might have hundreds or thousands of employees and is based in Virginia or Maryland.
All of these people are involved in the process before dividends can be distributed to Alaska natives. Most of the work is not being done in Alaska, so the natives aren't prone to move out to take these jobs, even if they were available.
Mike: You guys reported that the average shareholder received $615 in benefits from the ANCs. Can you give me a ballpark figure of what that amount should be if everything worked out equally?
Jen: There was never a promise that shareholders would receive a certain amount in dividends. No person who's a stockholder of a company has that guarantee. But because the stocks held by Alaska natives can never be sold, the only way for them to benefit as shareholders through the company that they own is through dividends. And the numbers are all over the map. There are shareholders in some areas that get tens of thousands a year in dividends, others where they maybe get a few hundred dollars every five years. So it really is kind of all over the map.
Mike: OK, so it really just is the market. Sometimes you're lucky, sometimes you're not. No?
Michael: In a way. But if I didn't like how Exxon did this year, I can sell my stock. And it was my choice to get into that. If I was born in the village of Exxon, for example, I do not have choice ‑ or I had a very limited choice as to where I can invest my money.
Mike: Your piece used Cape Fox Corporation as an example of an ANC that didn't perform the way it should. Can you walk us through what they did?
Michael: What the investigations and audits have shown is that much of the responsibility for these companies and much of the work was completely controlled by these non-natives. The Alaska natives had no idea what was going on, no oversight.
When they tried to get information from them, they were denied. They'd tried to go to regulators seeking help and were turned away. And only later did they find that, in addition to having most of control of these companies, these outside consultants were paying themselves tens of millions of dollars in consulting fees.
They used the corporation's money to invest in condos. They put their family and relatives on the payroll. It kind of really showed how easy it is for these outsiders to siphon off money from these companies. And it helps explain why the dividends and the benefits that come back to the shareholders are so little.
Mike: Do the natives have any say-so on how the companies operate? Are they members of the board, or are they decision makers at all?
Michael: The companies are set up with a native board. The board members are all natives, and they usually hire a CEO. Sometimes that CEO is native, sometimes ‑ in the case of Cape Fox, for example, the CEO was not native. It was someone they felt had business experience to run the corporation. The subsidiaries that the corporation owned were all run by non-natives. And the employees who did the work were all non-natives. In the example of Cape Fox, while they grew and grew and grew in revenue, they never saw really any jobs other than one, for the chairman.
Mike: Jen, can you talk about who has oversight for native corporations, and who ultimately should be held accountable for what they do?
Jen: Part of the issue is that oversight is fairly spotty and native corporations go as a whole. They are required to file annual reports with the state of Alaska if they meet two criteria. They have at least 500 shareholders ‑ so a company like Cape Fox would not meet the standard. And they have at $10 million in assets. So there are a lot of village corporations that do a lot of contracting that don't meet that threshold. And really what the state regulates is the voting process for the board of directors. They are the ones that can issue an opinion if there is a complaint about someone running for the board and something going wrong. They don't really review annual reports or anything like that. They gather that information.
The agencies, the federal agencies that contract with subsidiaries or ANCs themselves are charged with having good oversight, as their inspector generals are, of their contracting process. But in a lot of ways, the advantages that ANCs have are very desirable to a government contractor who needs to go through somebody that they know will do the work. They don't have to contract it. They don't have to put bids out. It speeds up the process for them.
As far as overall oversight, there's spotty oversight that doesn't really get at the issue of the people being left out of the process.
Mike: OK. One of the elephants in the room is Sarah Palin. Does she figure into this story in any way?
Michael: Actually, she did show up in the story a little bit. When Bruce Borup, the CEO of Cape Fox, was brought in, there were a lot of references that were checked to see ‑ to check his background. And she actually shows up on a reference check as a former mayor, city of Wasilla. She was not yet governor. But it turned out that she and Borup had served on some sort of council together. Or the two of them had come across each other in some local council back in the early 2000’s. And so it's unclear whether she recommended him or told them to stay away from him. But she shows up as one of the references they checked on him.
Mike: OK, I just had to ask.
Mike: Jen, can you talk a little bit about the archive and the data you collected?
Jen: What we did to start this project is we went to the only place you can get annual reports, at least the ones that have to report of the Alaska Native Corporations at the Alaska Division of Banking and Securities. And literally stood and scanned annual report after annual report after annual report for four days. And so we've made all that scanning that we did available to everyone else, so other people don't have to go up there. We've gathered as many of the annual reports as we could during that time period from 2005 to 2009, and made them available on our Website, along with some extracted information from those annual reports such as total revenue, profits, dividends, things that like that are little snapshots of the data that comes from those reports.
Mike: You've noted that other government officials and other news organizations have chronicled ANC abuses. What's different about this story this time that makes it a ProPublica story?
Michael: ProPublica's mission is to shine a light on the exploitation of the weak by the strong. So this is an example of a group that historically has been taken advantage of: Alaskan native, Native Americans. So it's definitely an area for us to look at. What we found in this case is that there a lot of outside people who are enriching themselves, in some case at the expenses of the Alaska natives.
Mike: That was Michael Grabell and Jennifer Lafleur. You can read their Alaska Native Corporation story at ProPublica.org. It's the first in a series, and it contains the most comprehensive database of searchable ANC documents ever put together online.
This week from our Officials Say Tumblr, our favorite quote of the week was, "I just Tweet. That's just the way I roll, just expressing my feelings via Twitter and Facebook."
Go to officialssay.tumblr.com to find out who said it.
Thanks for listening. This podcast was produced by Quadia Muhammad. For ProPublica, I'm Mike Webb. We'll see you next week.
Transcription by Casting Words