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Vol. 11, No. 37 Week of September 10, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Undue influence a no-no

Alaska raids seen as second step in FBI crackdown on suspected public corruption

Rose Ragsdale

For Petroleum News

When FBI agents raided the offices of six Alaska legislators Aug. 31, their actions likely stemmed from a new broader interpretation of what constitutes a violation of federal anti-bribery statutes that have been on the books since the 1920s, according to a campaign finance lobbyist in Washington, D.C.

The FBI searched offices in Juneau, Anchorage and the Matanuska-Susitna Borough belonging to state Sen. Ben Stevens, son of U.S. Sen. Ted Stevens; state Sen. John Cowdery, R-Anchorage; state Sen. Donald Olson, D-Nome; and state Reps. Pete Kott, R-Eagle River; Vic Kohring, R-Wasilla; and Bruce Weyhrauch, R-Juneau, looking for possible ties between the lawmakers and VECO Corp., a large oil field services company, according to officials and aides.

The warrants directed agents to collect all evidence of financial ties between VECO and the lawmakers and may have resulted from concern spurred by a guest opinion article that ran in the state’s three largest newspapers in March that cited campaign contributions from VECO executives to 11 lawmakers, including Rep. Mike Chenault, R-Nikiski, who co-chairs the House Finance Committee. State Sen. Ben Stevens also was noted in the article as receiving generous consulting fees from VECO. Stevens has collected more than $240,000 from VECO since 2000.

All Alaska Alliance Executive Director Lori Backes wrote the column, questioning whether the financial linkages between VECO and lawmakers created “undue influence” over the state’s political process. Backes’ group supports a North Slope natural gas pipeline proposal different from the project favored by Gov. Frank Murkowski and supported by VECO, a heavy hitter in Alaska politics.

VECO’s history of aggressive pro-oil industry advocacy dating back to the 1980s is well known in Alaska, and numerous media reports through the years have detailed generous monetary contributions the corporation and its executives have made to Alaska politicians and political parties at the federal, state and local levels.

But these campaign gifts, viewed by some as excessive, are generally perceived to fall well within legal limits.

What is ‘undue influence?’

So how and why would the FBI step forward now? Could it be a suspicion of undue influence? And what exactly is “undue influence?”

“Suspicion of undue influence is suspicion of bribery,” said Craig Holman, a lobbyist in the Congress Watch division of a national watchdog group called Public Citizen.

“It means taking something of monetary value in exchange for an official favor of some kind,” Holman explained.

He said the FBI’s raids in Alaska mirror actions taken in Washington, D.C., during the past few years, resulting in a public corruption scandal in Congress that has led to the resignation of House Majority Leader Rep. Tom DeLay, R-Texas, and Rep. Bob Ney, R-Ohio.

The scandal, dubbed the “Enron of lobbying,” centered on the actions of top Capitol Hill lobbyist Jack Abramoff and his associates who not only gave members of Congress considerable sums in campaign contributions but also wined and dined them and their aides, held fundraisers and gave out tickets to sporting events and expensive trips, including a junket to Scotland.

“There’s a Wild West mentality in Washington, D.C., and I’ve no doubt that it’s in some states, too. Especially states like Alaska with a significant energy benefit,” Holman said.

In Washington, D.C., five people, including Abramoff and several former DeLay staff members have pled guilty to the charges.

Abramoff pled guilty to defrauding clients and conspiring to bribe lawmakers and is expected to go to prison the week of Sept. 11. Others have pled guilty to similar charges, and the investigation is continuing.

DeLay also has been indicted on charges of campaign finance violations.

More fallout from the scandal is expected in the November elections when some congressmen implicated in the scandal will stand for re-election. These include Rep. William Jefferson, D-La., who was found with $90,000 in his freezer.

FBI expands definition

“In the Abramoff scandal, the FBI for the first time ever decided to expand the definition of ‘undue influence’ and bribery in terms of enforcement,” Holman said. “The anti-bribery laws under federal statutes apply to state and local levels, too. No officeholder can take anything of monetary value.”

It’s early days in Alaska, but so far the FBI investigation appears to be focused on the financial contributions and other possible gifts that four VECO executives named in an FBI warrant may have made to members of the Alaska Legislature.

VECO Chief Executive Bill Allen, President Peter Leathard, Executive Vice President Roger Chan and Vice President Rick Smith, together, have given more than $570,000 to state candidates in official campaign contributions during the past decade, according to the Institute on Money in State Politics.

The four have also contributed more than $384,000 to presidential and congressional races in Alaska and other states since 1997, according to the Federal Election Commission.

Since Gov. Frank Murkowski and the state’s three largest oil producers began negotiations to build a $25 billion natural gas pipeline to Canada about two years ago, the four executives have bumped up the giving.

The four have spent $231,273 on state candidates in 2004 and through this year’s primary elections.

This year alone, the executives have spent $84,800 on individual legislative races, all to Republican incumbents, challengers or the state’s Republican Party.

Aside from cash contributions, Senate President Ben Stevens, R-Anchorage, has received $252,000 since 2001 for consulting work from the company, according to disclosure statements filed with the Alaska Public Offices Committee. Little is known about what Stevens did for that money, as he is not required to report details of the work.

One of the 20 or so warrants executed in raids last week across Alaska gave federal agents the authority to seize any documents, letters, records, electronic mail or any other form of communication with VECO, Allen, Smith, Leathard and Chan. The warrant calls for seizing proof of payments, contracts, employment, gifts or fundraisers by the executives to the legislators.

The warrant specifically looks for “any and all documents concerning, reflecting or relating to proposed legislation in the state of Alaska involving either the creation of a natural gas pipeline or the petroleum production tax.”

The Legislature passed the petroleum production tax in August, a major rewrite of the state’s oil tax laws that will base production taxes on the net profits of each oil company’s Alaska operations.

Supreme Court eyes corporate gifts

Adding fuel to the FBI’s engine may be the dim view the U.S. Supreme Court has taken in recent years of corporate contributions to political campaigns.

In Mitch McConnell, U.S. Senator et al. v. Federal Election Commission, the Court wrote in 2003 that “state law grants corporations special advantages — such as limited liability, perpetual life, and the favorable treatment of the accumulation and distribution of assets — that enhance their ability to attract capital and to deploy their resources in ways that maximize the return on their shareholders’ investments. These state-created advantages not only allow corporations to play a dominant role in the Nation’s economy, but also permit them to use ‘resources amassed in the economic marketplace” to obtain “an unfair advantage in the political marketplace.’”

“The political advantage of corporations is unfair,” the Court has explained, because “the resources in the treasury of a business corporation ... are not an indication of popular support for the corporation’s political ideas,” but rather “reflect … the economically motivated decisions of investors and customers.”

In Jeremiah W. (Jay) Nixon, Attorney General of Missouri, et al., petitioners v. Shrink Missouri Government PAC et al., the Court wrote in 2000 that “while neither law nor morals equate all political contributions, without more, with bribes, we spoke in Buckley (v. Valeo) of the perception of corruption ‘inherent in a regime of large individual financial contributions’ to candidates for public office, id., at 27, as a source of concern ‘almost equal’ to quid pro quo improbity, ibid.”

“The public interest in countering that perception was, indeed, the entire answer to the overbreadth claim raised in the Buckley case. Id., at 30. This made perfect sense. Leave the perception of impropriety unanswered, and the cynical assumption that large donors call the tune could jeopardize the willingness of voters to take part in democratic governance. Democracy works ‘only if the people have faith in those who govern, and that faith is bound to be shattered when high officials and their appointees engage in activities which arouse suspicions of malfeasance and corruption.’” United States v. Mississippi Valley Generating Co., 364 U.S. 520, 562 (1961).

Holman said a key to whether the FBI can make a case for improper conduct in Alaska is the timing of the financial contributions and gifts and the timing of any official actions, or favors, by the lawmakers.

Oil industry lavished lawmakers with gifts

A report in July citing the voting behavior of 20 state lawmakers with the most contributions from oil industry sources may have helped attract FBI scrutiny.

Compiled by the Alaska Public Interest Research Group, the report noted that 19 of the top 20 Alaska legislative recipients of pro-oil Alaska Support Industry Alliance related campaign contributions voted during the regular session for a production profits tax bill on oil thought to be especially generous to the industry.

“We need to break the connection between big money and politics,” said AKPIRG Executive Director Steve Cleary. “Legislation should be done on behalf of the 99 percent of Alaskans that don’t contribute to political campaigns, not the special interests that supply tons of money.”

In addition to generous oil industry-related contributions, lobbying expenditures by the oil industry in Alaska may be headed for an all-time high, AKPIRG said. Lobbying by the three largest oil companies doubled from 2004 to 2005. Lobbying expenses in just the first quarter of 2006 were more than the entire year of 2005. At this pace, more than $9 million are projected be spent by the three major oil companies and the rest of the oil industry for lobbying expenses in 2006, the group noted.

“That’s just the tip of the iceberg,” AKPIRG spokesman Jim Sykes said in the report. “Numerous other contributions that may be oil industry related do not disclose the occupation or relationship of those giving the money.”

Sykes also cited liberal spending by the oil companies on ‘Schedule B’ expenses that include receptions, meals, travel junkets and other perks “often used to soften up legislators.”

In addition, enormous sums are being spent on media ads as well as other issue campaign tactics, AKPIRG said. “The media money expenditures by the oil industry may set a new record,” Sykes said.

“So much oil money is greasing the legislative wheels along with a big push from the governor that Alaskans have to wonder whether their legislators will carefully consider all the available options on behalf of Alaskans or cave into the pressures created by the governor and oil industry,” he added.

Cleary said the passage Aug. 22 of a campaign finance reform initiative, also known as Ballot No. 1, with 73 percent of the voters favoring it, shows that “Alaskans are not responding to big money and politics as usual.”

“If there has been wrongdoing, we hope it will come out, and we can continue to fine-tune the system so money, corporate money in particular, isn’t unduly influencing the political system,” Cleary said.

The generous flow of funds and gifts to state lawmakers also could have drawn the attention of the FBI, Holman said.

“Even if the contributions were made within legal limits, the question is whether they were meant to bribe the officeholders,” he said.

The Legislature approved a modified version of the production profits tax, or PPT, measure in August.

Impropriety not apparent

But whether the timing of its passage might be construed as an official favor in exchange for liberal donations and gifts is an open question.

Certainly, no direct link between legislative debate on the bill and the recipients of VECO’s contributions and gifts is apparent.

Stevens was among state lawmakers who played an active role in that debate. Stevens sat on the Senate Resources Committee and supported Gov. Frank Murkowski’s original PPT proposal.

Little is known about the purpose of the FBI investigation. But the raids, which may be the first in state history, have soured plans for a special session Murkowski wanted to call for Sept. 19 to again consider his pipeline deal with BP, ConocoPhillips and Exxon.

McGavick sheds VECO donations

The ripple effect of the FBI investigation also is starting to be felt outside Alaska. The campaign of Republican Senate hopeful Mike McGavick in Washington State said Sept. 5 he returned $14,000 in contributions from VECO executives.

Former Gov. Tony Knowles, who is the Democratic nominee again this year, is one of the few Democrats who has received contributions from VECO, and only when he was running for re-election in 1998. Knowles received $10,975 from company executives that year, according to his campaign. His running mate, House Minority Leader Ethan Berkowitz, received $8,000 from VECO officials in 2000.

Neither plans to return the money from those past campaigns, spokeswoman Patty Ginsburg said.

Knowles made the FBI investigation of VECO a focus of a five-point ethics plan he described Sept. 5.

“I think the figures show that they were a dominant influence in numerous elections of legislators and generously gave to statewide elected officials,” Knowles said of VECO. He said it is important for more Alaskans to donate money to campaigns or else “the proportionality of that assistance gets way out of kilter.”

“The only ones truly affecting a campaign are the privileged few,” Knowles said.

The Republican nominee, Sarah Palin, did not immediately return a call for comment Sept. 5.

Amy Menard, an Anchorage attorney representing the company, said some VECO employees have a strong interest in politics, which is their right.

“VECO has always worked hard to promote a pro-business and pro-economic development climate in those places where it does business,” she said.

Menard added the company is now in a “very intense fact-gathering process” and does not have enough information to elaborate on questions of the executives’ political ties.

Allen, Leathard and Chan themselves elaborated on their political interests in an October 2004 newsletter to VECO employees. The three co-authored an article in which they called that election critical to the company’s future.

Alaska represents more than 50 percent of the company’s business volume worldwide and an even higher percentage of its net income, they wrote.

“The right people in the White House, the U.S. Capitol and the Alaska State Legislature make a huge impact on oil and gas resource development and on the economy of Alaska,” they wrote.

Earlier that year, in March, Allen wrote a separate article setting the stage for the elections. He placed at the top of the Alaska agenda opening the Arctic National Wildlife Refuge, oil taxes and the gas pipeline.

The major Democratic presidential candidates, he wrote at the time, are backed by environmental groups and are firmly against drilling in ANWR, and for the pipeline, “they have so far done nothing to move that project ahead.”

“Closer to home, the Democratic minority in the Alaska Legislature is calling for a review of taxes paid by the major producers, repeating the statements of past years that the state deserves a bigger share of the pie,” Allen wrote.



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