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Stephen Taufen
A public watchdog and advocate for fishermen and their coastal communities. Taufen is an "insider" who blew the whistle on the international profit laundering between global affiliates of North Pacific seafood companies, who use illicit accounting to deny the USA the proper taxes on seafood trade. The same practices are used to lower ex-vessel prices to the fleets, and to bleed monies from our regional economy.

April 28th

Adak Runs Amok: New GAO Study Apropos

Print The Government Accountability Office has released another report of importance to coastal Alaska, native populations, and the seafood industry . As federal fisheries resources continue along a path of unjust privatization, we trust this report on sole-source contracting is also worthy of your consideration. Groundswell herein illuminates misuses of federal funds from the perspective of Adak Island where a few of us faced electric utility development, too. After all, fisheries depend on good community utility services.

To: Katherine Schinasi, Managing Director - Acquisition and Sourcing

Government Accountability Office; Washington DC

RE: GAO's April 2006 report 06-399 on Contract Management - Alaska Native Corps. -- FOR THE RECORD

Specifically re: The Aleut Corporation and Government Waste -- False Claims Act violations not yet reviewed.

Thank you and your team for the illuminating GAO study on Special 8(a) sole-source contracts awarded to Alaska Native Corporations (ANCs) using federal funds under Small Business Administration programs. As a person long involved in business across coastal Alaska, it is a reminder that government has a rightful legal role in assisting the development of Native communities through business enhancement, rather than outright welfare. To the extent that Natives do indeed envision gainful employment and seek those opportunities, learn new skills, and share the wealth created, these 8(a) programs are of great value.

Your report, however, makes no attempt to delve into situations of abuse so egregious as to constitute fraudulent misuses of government funds -- either from such contract programs or other federal appropriations. The story at Adak Island may be instructive.

It is the latter case (abuse) that can most illuminate the real truths beneath the operations of certain native corporations, in particular situations. And the subject of such concern of this letter is The Aleut Corporation (TAC) and its subsidiaries (the Aleut Enterprise Corp., TAC Services etc).

Having both lived in their ANCSA realm, and having many good friends among the people living there -- both native and non-native, my partner (Larry Davison, a former vice president of UniSea Inc.) and I tried from 1995 to 2002 (and beyond) to assist in the real development of the Adak Island community, after the US Navy base was closed. Our specific arena of development had to do with providing new electrical power generation and distribution, metering and billing, and public-services provision to all customers living in a newly-resized community.

At the heart of our pro-development business thoughts -- especially given that electric utilities operate in Alaska under a regulatory framework that normally provides tight public scrutiny of operating assets and liabilities, revenues and expenses -- was the idea of a properly-sized and economically efficient new public-serving utility. We cooperated with the US Navy in 1999 by re-engineering and bidding on a Navy contract for a new powerplant and related systems. However, ANC parties (TAC Services) simply confiscated our proprietary bid knowledge at no compensation to us. The Navy contract bid process went awry and was withdrawn. Yet, we still waited patiently for the opportunity to develop Adak's power systems in a way that not only provided us a business opportunity (and simple employment salaries under regulated limits), but that actually served the future development of Adak for all businesses. The best way to do that was to provide low-cost public-serving utilities, of course. Electricity was the most urgent, but water and sewage and other needs were equally imperative. Otherwise businesses of all types could not afford to locate in that remote region.

Hundreds of millions of dollars were spent on base conversion and clean-up, with a large portion awarded through and paid to businesses and shareholders of ANCs. Eventually, US Senator Ted Stevens (chair of Appropriations) was tapped again to allot two US Department of Commerce grants under the Economic Development Assistance (EDA) program to Adak, totaling approximately $10 million. A large portion of those funds was specifically for a new powerhouse, as well as paying for costs of fuel and maintenance related to public-serving utilities. These funds were supposed to be under Base Realignment and Closure (BRAC) guidelines through proper federally supervised entities, as the Navy and Interior still held title to the lands.

ANC managers and their associates chose a "force accounting" approach to the new powerhouse, and to make a long story short, ended up mismanaging the project in the worst of ways: fraudulently and to the extent of complete operational failure. And an Aleut Corporation subsidiary disconnected a Navy fuel-delivery pipeline to the existing powerhouse and began a process of price-gouging for fuel. After all, to them, it was all "free" government money, and they had a better idea whose pockets it should end up in. They thwarted the controls that should have applied under federal (BRAC) reuse management, failed to obtain construction permits and do proper engineering, ignored ours and the Navy engineer's recommendations, devastated a building and the mis-installed equipment involved, and never actually produced a new operating powerhouse. However, in its shareholder newsletter, the ANC's management lied in April of 2002 saying that powerhouse project was up and running. Again, it never turned out a single kilowatt. Why RCA has not prosecuted certainly lies in the possibility of political suppressions, as well. After all, the RCA has policed similar situations -- so, why not Adak, where Ted and Ben Stevens are involved?

Yet, in that process the ANC and organizations it controlled misspent over $3 million for the construction expenses -- mostly among friends; took at least another $2 million in fuel-fraud, and failed to begin metering and billing for electricity -- despite being under issued Orders to do so by the Regulatory Commission of Alaska (RCA). That left over $5 million in unbilled electricity (later over $7 million), which of course was generally improperly funneled into the pockets of the ANC and its subsidiaries and related operations -- including a seafood operation they held secret agreements with, on both electricity and seafood operations. The failure of government oversight allowed significant outright frauds for which False Claims Act or other prosecutions should have occurred -- or could still apply (10-year statute of limitations).

Despite initial development failures, in 2002 we were asked by the ANC and the newly-formed City of Adak to finally resolve their electric utility problems. We took a practical approach and began the process of privatizing and preparing for a Tariff Application, and got to work on planning how to find funding for another powerhouse. However, it was inevitable in that process of electrical management (for which I held additional management powers under the City itself) that we would have to uncover the lack of permitting, address noncompliance with national electrical and construction standards/laws, and deal with the fuel fraud and other waste. At the least, we would have had to properly report to the RCA the assets and liabilities we believed were accorded to the utility that we were asked to privatize; otherwise, proper rate development could not occur under law. And, we would have to collect for electricity that the ANC and its businesses and shareholders were balking at paying. Some of those defrauded dollars also flowed through to other ANCs in the form of reduced rents while contracting at Adak.

In short, we got treated like arms inspectors in Iraq, and summarily booted out and excluded, shorted on payments, and driven out of business -- all because we would not cover-up frauds, and because we intended to help the City of Adak actually collect for electricity used. After all, the economic health of the independent second-class City was jeopardized by the ANC itself; and the few revenues it gained from fish taxes were being diverted to fuel price-gouging back into the ANC's hands. Why Alaska's governor never came to the aid of the City when it officially declared a financial disaster in 2002 has never been explained -- but surely that too has a political reason, given former US Senator Frank Murkowski's involvement in the Land Transfer itself, then as governor.

How could true economic "development" at Adak ever occur under such a scenario -- unless one defines it as taking federal dollars and pocketing them in a few shareholders' wallets to the detriment of the greater ANC shareholders (and harming the greater Aleut Nations') best interests? In the next phase, we caught ANC agents in outright perjury on the procurement of federal fishing rights the ANC wanted assigned to itself rather than to the appropriate federal or BRAC-entity, the Adak Reuse Corporation, which flowed through to the new City of Adak, itself. We filed a federal Writ of Mandamus (an extraordinary writ to command the federal regional fish council and NOAA Fisheries to follow the Administrative Procedures Act and other laws) , and it led to a federal investigation of fishing rights problems, but left the issue of perjury unresolved, unprosecuted and swept under the rug. It pays to note that the US Attorney was appointed courtesy of Senator Ted Stevens, and had worked for Frank Murkowski before. However, the Adak Fisheries joint operation was assessed the largest fine ever in NOAA Fisheries law enforcement history, a $3.4 million fine recently debated before a Coast Guard administrative judge, for which we await word of final judgment.

Later, we uncovered evidence that it appears that the Undersecretary of the Navy's own BRAC documents were deliberately altered or forged to substitute the ANC's entity name (Aleut Corporation and/or Aleut Enterprise Corporation) in place of the proper BRAC designee. That is a charge far more egregious than the perjury before a fish council, as it is an affront to the national security of the Nation and its Defense. Without the lies, without the frauds, the allocation of public federal fishing rights would have properly been given to a "community based organization" (CBO) that would generally have been made up of all citizens (native and non-native) and local businesses as representatives, and the revenues would have flowed to entities actually concerned with the true future development of Adak in a proper economic sense, especially the state-sanctioned City.

The ANC then orchestrated a dismantling of an open city government and replaced it by a controlled force. The perjuries and frauds were needed to ensure that the ANC alone usurped those government grant funds and all future fishery income streams for itself, instead. One reason behind that was that ANCSA rights did not qualify the Aleut Corporation for "Community Development Quotas" (CDQs) in fisheries, as it did for many other native entities.

Since 2002, we have been made aware of another $15 million in federal funds for asbestos abatement awarded earlier at Senator Stevens' behest, despite the Navy having already taken care of the problem. In short, the Navy contracting agency was then ordered "to create the problem to go with the money" -- i.e. to participate in a misspending scheme or else. In addition, it's no wonder that the EDA later refused to properly cooperate in a helpful and disclosing manner on FOIA requests designed to actually provide information about these frauds, in what I could only conclude was a collusionary cover-up. It ranked right up there with the US Attorney General in Alaska failing to prosecute fully the perjury, given indisputable evidence on federal and state documents that the rights indeed belonged through a BRAC process, while Adak was still under federal ownership. And with the RCA and governor's failures to police the Adak electric utility and fuel price-gouging frauds, as well.

Since then, and despite the earlier misspending patterns and obvious fraud, another $30 million in EDA funds has recently been granted for a small boat harbor. Surely Senator Ted Stevens was again involved. That project was originally said to be around $6 million. As of February 2006, Alaska's Department of Community and Economic Development website indicated $2.1 million awarded for preliminary phase work, and that the total of $30 million is apparently to be made available. Still, the ANC's agents continued further lies before the North Pacific Fishery Management Council (which reports to the Secretary of Commerce), especially about "investments" at Adak. The Aleut Corporation never had a single dime invested, as the Land Transfer Agreement specifically said the swap of lands elsewhere does not qualify as such, and the only monies they have acquired came directly from the US Treasury itself, not from their own pockets. And they have lied about many other things, all to ensure that they procure federal fishing rights they should not even have control over in the first place. It is important to ask, Do other ANCs also have similar fraud-abuse rights?

Continue to Part 2