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Vol. 12, No. 19 Week of May 13, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Public corruption scandal erupts in Alaska

Former, current state legislators arrested and Veco’s Allen confesses in federal probe; PPT and oil field contractor under cloud

Rose Ragsdale

For Petroleum News

In the latest chapter of a political scandal that began unfolding last summer, three Alaska politicians and two oil industry executives are facing federal criminal charges that could earn them stiff fines and lengthy prison sentences. Ever-widening fallout from the disclosures also cast a cloud over Alaska’s new petroleum production tax and the credibility of a leading oil field service company and many of Alaska’s Republican lawmakers.

The U.S. Department of Justice announced indictments and arrests May 4 in Juneau of state Rep. Victor H. Kohring, R-Wasilla, and former state Reps. Pete Kott, R-Eagle River, and Bruce Weyhrauch, R-Juneau, on multiple charges arising from a federal investigation into public corruption in Alaska begun in early 2006.

Kohring was first elected to the Alaska State House of Representatives in 1994; Weyhrauch, an attorney, was a member of the Alaska House from 2002 to January 2007; and Kott, was a member of the House from 1992 to 2007, including two years as speaker, according to Assistant Attorney General Alice S. Fisher of the Justice Department’s criminal division.

Bill J. Allen, chairman of Veco Corp. pleaded guilty May 7 in federal court in Anchorage to bribing at least four Alaska legislators, including former state Senate President Ben Stevens, who represented Anchorage in the Legislature.

In a plea bargain with the Justice Department’s Public Integrity Section, Allen and Rick Smith, Veco’s vice president for community and government affairs, pleaded guilty to three identical felony charges — bribery and two counts of conspiracy.

Both men accepted responsibility for more than $400,000 in illegal payments and benefits to public officials or their families. More than half the money went to Stevens in the form of phony “consulting” fees, the government charged.

Allen is a former welder who led Veco in 20 years from a small Kenai oil-field services company to a billion-dollar international contractor and a major political force.

Stevens, son of U.S. Sen. Ted Stevens, has not been charged. He was named in the plea documents as “State Senator B.”

In return for special consideration at sentencing, Allen, 70, and Smith, 62, agreed to cooperate in the ongoing federal investigation. The government also promised to not seek charges against Allen’s son Mark, a Veco official, his daughter Tammy Kerrigan, or any other relative.

The federal plea bargain doesn’t bar state prosecutors from seeking additional charges against Allen and Smith. Both men acknowledged violating state campaign finance laws.

The plea deals were formalized in secret and opened in U.S. District Court May 7.

Allen and Smith were released on $10,000 unsecured bond and ordered to report weekly to federal probation officers. No date has been set for sentencing. They face up to 10 years in prison and $750,000 each in fines, but cooperation could substantially reduce the penalties.

Extortion, bribery, conspiracy charges

A four-count indictment May 3 charges Kohring with extortion, bribery, attempted extortion and conspiracy. The indictment alleges that Kohring solicited and received financial benefits from an entity identified in the indictment as “Company A,” and that in exchange for those benefits, Kohring, in a series of meetings, corruptly solicited, demanded and accepted from the company’s CEO and a vice president cash payments including $2,100 to $2,600, and a $3,000 job for a relative, and also solicited, but did not receive, a $17,000 loan to pay credit card debt.

In return Kohring allegedly voted in favor of a legislative proposal called the “petroleum production tax,” or PPT, which would change taxation of Alaska oil production, supported by Company A; lobbied other elected officials to support versions of the PPT bill; and provided official support for the natural gas pipeline legislation and the PPT bill.

Kohring denied the charges May 7, saying he firmly believes a jury will exonerate him.

Alaska House leaders, meanwhile, stripped Kohring of his chairmanship of the House Oil and Gas Committee. However, he will continue to represent his district, unless he is proven guilty.

The grand jury also returned a seven-count indictment against Kott and Weyhrauch, charging them with conspiracy, extortion, bribery, and mail and wire fraud; and Weyhrauch with attempted extortion. The indictment alleges that Kott and Weyhrauch each corruptly solicited and/or received multiple financial benefits from Company A in exchange for each legislator’s agreement to perform official acts as a member of the Alaska Legislature to further the company’s business interests.

Further, Kott allegedly corruptly solicited, and the company agreed to provide, employment for Kott after he left the state Legislature, as well as other things of value. At a meeting in April 2006 with the company’s vice president and, via teleconference, the CEO, Kott said he had been successful in getting other state legislators to support the oil tax legislation favored by Company A, and that he believed the bill would pass. Kott allegedly said in a meeting with the company’s CEO and vice president on May 7, 2006, that he worked to kill an amendment to the PPT bill because Company A’s CEO told him to do so.

The indictment alleged that Kott said, “I had to get ‘er done. So I had to come back and face this man right here (pointing to the CEO). I had to cheat, steal, beg, borrow and lie.” In June 2006, Kott allegedly worked with Weyhrauch to seek an adjournment of a special session of the House before lawmakers could vote on an amendment to the PPT bill that the company did not support.

Alleged payoffs were modest

In return for these and other actions, Kott demanded and Company A — through the CEO and vice president — provided $8,993 in payments, $2,750 in expenses paid to a polling company that worked for Kott’s re-election campaign and a future contract for Kott as a lobbyist for the company. Weyhrauch allegedly solicited employment from Company A after he left the state House. Weyhrauch allegedly told the company’s executives that he would support their position on the PPT bill. After mistakenly voting the “wrong way” on an amendment that the company and representatives of three other oil companies did not support, Weyhrauch changed his vote on instructions from Kott and Company A’s CEO.

The indictment alleges that Weyhrauch, like Kott, voted in favor of versions of the PPT bill supported by Company A and the three other companies; lobbied other lawmakers for their support; and offered assistance to Company A and its executives by providing official support for the natural gas pipeline and the PPT bill.

“These two indictments allege that the defendants sold their offices in Alaska’s State House to an influential energy company in exchange for cash payments, loans, jobs for relatives and the promise of future employment,” Fisher said. “There is no room for bribery and extortion at any level of government — federal, state or local.”

If convicted, Kohring, Kott and Weyhrauch each face up to 35 years in prison and $750,000 fines on the extortion, bribery and conspiracy charges. Kott and Weyhrauch also each face up to another 20 years in prison and another $250,000 fine on the mail and wire fraud counts.

Influence-peddling in Juneau

In the indictments and arrests May 4, Veco, Allen and Smith showed up in documents as “Company A,” “Company CEO” and “Company VP.”

It appeared from those charges that the FBI used electronic surveillance of Veco’s suite in Juneau’s Baranof Hotel to capture incriminating dialogue and images. The indictments spoke of payments by Allen and Smith of several thousand dollars and promises of jobs to the legislators. In return, the legislators agreed last year to vote for the oil production tax favored by the oil industry, the government alleged.

Those indictments referred to an unnamed state senator who allegedly played a role in one part of the conspiracy — a plan by Veco to farm out legal work to Weyhrauch, an attorney, in return for his vote on oil legislation. The description of that unnamed senator was ambiguous — the younger Stevens, was one of three senators it could have been.

One of two unnamed state senators in the charges against Allen and Smith is apparently Stevens. The Veco “consulting” payments of $243,250 between 2002 and 2006 documented in the charges precisely match the amount Stevens reported on his financial disclosures as consulting income to his firm, Ben Stevens and Associates.

Over the years, Stevens has refused to disclose what work he did for that money or for any of the other consulting jobs he has listed, mostly for fishing industry clients.

Former state representative Ray Metcalfe, in complaints to the Alaska Public Offices Commission and to federal authorities, challenged Stevens, saying the payments were thinly disguised bribes.

Nothing came of Metcalfe’s APOC complaints — the state agency said that Stevens adequately described his work.

But in their admissions to federal prosecutors, Allen and Smith appeared to vindicate Metcalfe, who heads the Alaska Republican Moderate Party.

“Although Allen and Veco characterized these payments … as being for consulting services, Allen acknowledges that in actuality the payments … were in exchange for giving advice, lobbying colleagues, and taking official acts in matters before the Legislature,” prosecutors said.

Only once in five years, according to the prosecutors, did Stevens consult for Veco on a matter not involving his legislative job — a task involving a sunken boat at an unidentified location where Veco wanted to build a dock. Stevens worked less than 20 hours on that project, they said.

Allen also promised an executive job to Stevens when he left office. On June 25, 2006, Stevens said he’d take that job, the charges said.

Stevens denies wrongdoing

Stevens’s attorney, John Wolfe of Seattle, declined to respond to specifics in the charges, but said his client did nothing wrong.

“Ben Stevens denies engaging in any criminal conduct and maintains that he is innocent,” Wolfe said. “Mr. Stevens is surprised to learn that Bill Allen has pled guilty to various federal crimes and hopes that Mr. Allen is not falsely accusing former and current members of the Alaska Legislature in order to mitigate his admitted criminality.”

One other unnamed state senator, a “state elected official,” and two unnamed Veco executives also show up in the charging documents against Allen and Smith.

The senator in question was not accused of taking illegal payments but was listed as a member of the conspiracy to bribe and extort. That senator attempted to enlist the support for Veco-backed legislation of the “state elected official” through an illegal campaign contribution scheme.

Four state senators match the description of that person, two of whom had their offices searched by the FBI in August: John Cowdery, R-Anchorage, and Donald Olson, D-Nome.

The unnamed senator is likely Cowdery, said Kevin Fitzgerald, his defense attorney. As to what that means for Cowdery, Fitzgerald said he’s investigating the allegations laid out in the case against Allen.

Cowdery is in poor health. He’s been hospitalized in Juneau with pneumonia and a lung infection, Senate majority spokesman Jeff Turner said May 7.

The “state elected official” was impossible to identify from the information in the charges, and could be helping the government in the investigation.

Veco very active in Juneau

The two unnamed Veco executives were accused of participating in a scheme to use corporate money to reimburse political campaign contributions by Veco officials — crimes under federal and state law. Allen and Smith admitted violating federal tax laws by taking deductions for illegal activity.

Veco executives routinely donate to political campaigns, giving tens of thousands of dollars to candidates in last year’s primary races alone.

Allen, in his plea, admitted reimbursing Rep. Kott for a $1,000 donation Kott made in the governor’s race. The contribution wasn’t further described in the charges, but APOC records show that Kott donated $1,000 to former Gov. Frank Murkowski’s re-election bid. Other allegations by Allen and Smith include a May 7, 2006, incident when Kott was on the floor of the Alaska House and his cell phone rang. Allen and Smith were calling to give Kott “instructions on how to vote on the particular piece of legislation,” prosecutors said.

Some time later, Kott called them back with a report on the status of the vote “and the projected outcome,” the charges said.

Democratic legislators complained

Other lawmakers complained about the irregularities they personally observed involving Allen during the debate over the PPT.

On the last night of the special session last summer when the Legislature passed the production tax, Rep. Harry Crawford, D-Anchorage, said he saw lawmakers conferring with Allen “and then I saw Bill Allen passing a note across the rail to a lawmaker. … That’s not supposed to happen. Notes are supposed to come through the double doors and be passed through our pages,” Crawford told Petroleum News in October. “It’s been pretty rugged this last couple of sessions.”

A federal grand jury also indicted state Rep. Thomas T. Anderson, R-Anchorage, in December on unrelated charges of extortion, conspiracy, bribery and money-laundering for allegedly soliciting, receiving and scheming to disguise $26,000 in illegal payments from an FBI confidential source supposedly representing an Outside corrections company.

Business almost as usual at Veco

Veco, meanwhile, is continuing to conduct its business, the company said in a statement May 7.

Allen is listed as an owner of 5 percent of Veco’s stock in the company’s 2006 biennial report. But the company’s attorney in the criminal case, Amy Menard, said he no longer has an ownership interest.

Allen is also publisher of the Voice of Times, a half-page opinion section in the Anchorage Daily News. It is what remains of the Anchorage Times, which Allen owned for two years before he sold the newspaper to the Daily News in 1992.

The Voice of the Times will cease publication after 15 years when its contract expires this month, Daily News Publisher Mike Sexton announced May 9.

As to the status of Allen and Smith at Veco, they still held their titles on May 7, Menard said. But that could change.

“I can tell you that in light of today’s events, we expect the board of directors to be meeting this week and making decisions about appropriate actions,” Menard said.

Subsequently, Menard said Veco has hired an independent consultant to conduct an internal review of the company’s political and lobbying activities.

Leaders ‘sad’ and ‘surprised’

U.S. Sens. Lisa Murkowski and Ted Stevens and Gov. Sarah Palin initially expressed dismay at the indictments and arrests.

U.S. Rep. Don Young, R-Alaska, who counts Veco and its employees among his most generous campaign donors, has declined to comment, saying it is inappropriate.

Murkowski described the situation as “truly a troubled time in our state’s history,” and said May 7 that she hoped the Legislature can overcome the challenge and move the state forward in “considering one of the most critical issues for our future,” presumably the natural gas pipeline.

Stevens, a personal friend of Allen’s, said in a statement May 7 that he “was surprised and saddened” to learn of indictments and arrests.

“Like many Alaskans, I am finding out about these events from the media. The legal process will now continue. Consistent with my longstanding practice regarding matters of this sort, I will make no further comment,” he said.

Stevens also revealed May 8 that he has dropped his support for a controversial salmon marketing program, with ties to the younger Stevens that came under scrutiny last year in a federal investigation.

Palin said the scandal has strengthened her resolve to correct the apparently wayward path Alaska’s government has taken in recent years.

“We are committed to doing it right and building the faith of this state,” she said May 4.

“… That is why we are so firm on a fair and open process on Alaska Gas Inducement Act,” she said.

AGIA is legislation aimed at getting a pipeline built that Palin hopes will eventually ship trillions of cubic feet of North Slope gas to market.

She said state lawmakers should move forward as time is running short on a session scheduled to end May 16.

“This shouldn’t be used as an excuse to paralyze the discussion under way now on the merits of AGIA,” she said. “That’s unacceptable.”

Palin wants review of PPT

As more details of the federal investigation emerged May 7, Palin called for more answers and accountability.

“I want to know if there was undue influence on lawmakers, decision makers and administrators to the detriment of not only the process but the product that the Legislature ultimately adopted,” she said. “What we need to do is retrace steps and revisit all of this and allow for a fair debate without that undue influence.”

Palin has asked Attorney General Talis J. Colberg and Revenue Commissioner Pat Galvin to conduct an informal review of the process leading to adoption of the PPT, a spokeswoman said May 8.

“That economic analysis is expected to take at least a couple of months,” said Meghan Stapleton, Palin’s press secretary. “She is open to the idea of a special session to discuss the PPT.”

Dems push ethics reform

A group of Democratic legislators, including Rep. Les Gara, D-Anchorage, called May 8 for a special session of the Legislature to review the PPT. State lawmakers need to “to fix the oil tax that passed last year,” and to close loopholes in the law that allow $5 billion in oil company tax giveaways, Gara said May 9.

Democratic lawmakers say they have been trying for years to clean up lax provisions of Alaska’s ethics and campaign finance laws. Bills that would make it a crime, for example, to promise legislators campaign contributions if they change their votes have been blocked from passage by the Republican-led Legislature for the past three years, they said.

However, an ethics reform package was expected to pass the Alaska Senate by May 11, and will then return to the House for concurrence, Democratic lawmakers said May 8.

Meanwhile, major oil industry customers of Veco said May 7 that they plan to continue employing the company in Alaska’s oil fields in the short term and are encouraged by the company’s promise to conduct an internal review of its government-related practices.

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