Alaska Native Law Section: ANCSA 7i 2006 ANCSA Amendment GAO Report on ANC 8a Program

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Alaska Native Law SectionANCSA 7(i) 2006 ANCSA
Amendment GAO Report on ANC 8(a) Program

• By Aaron M. Schutt
• Sonosky, Chambers, Sachse, Miller Munson LLP

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Outline

• ANCSA 7(i) Issue Revenue Sharing Issue Regarding
  ASRCs Kaktovik Land Exchange and ANWR
• ANCSA Amendment Regarding Enrollment of New
  Shareholders
• GAO Report on ANC 8(a) Program

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ANCSA 7(i)

• 70 of all revenues received by each Regional
  Corporation from the timber resources and
  subsurface estate patented to it pursuant to this
  Act shall be divided annually by the Regional
  Corporation among all twelve Regional
  Corporations . 43 U.S.C. 1606(i).
• Each Regional Corporation distributes 50 of 7(i)
  distributions to its Village Corporations and to
  its at-large shareholders, pursuant to ANCSA
  7(j)

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7(i) Rationale (cont.)

• Section 7(i) "was intended to achieve a rough
  equality in assets among all the Natives. . . .
  (The section) insures that all of the Natives
  will benefit in roughly equal proportions from
  these assets. . . . Congress required that 70
  percent of all revenues from the development of
  timber and subsurface resources be distributed
  among the Regional Corporations. Chugach
  Natives, Inc. vs. Doyon, Ltd., 588 F.2d 723 (9th
  Cir. 1978)

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Actual performance of 7(i), through 2004, total
736 M
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Timeline
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ASRC subsurface rights in ANWR under ANCSA

• Under ANCSA, ASRC was not permitted to receive
  subsurface underlying Kaktovik Inupiat
  Corporation surface within ANWR it obtained
  in-lieu subsurface elsewhere

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ANILCA 1431 (1980)

• Subsection (g) authorized KIC to select an
  additional township in ANWR in exchange for
  certain land
• Subsection (o) gave ASRC a 40-year option to
  exchange in-lieu subsurface for subsurface under
  village selections within ANWR or NPRA if oil and
  gas development is authorized within 75 miles of
  selection
• Exchanged ANWR subsurface would have been subject
  to 7(i) sharing

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Chandler Lake Exchange Agreement (1983)

• ASRC did not acquire the Kaktovik subsurface
  under 1431(o) and 7(i)
• ASRC conveyed to the U.S. surface estate in Gates
  of the Arctic
• U.S. agreed to convey to ASRC ANWR subsurface in
  vicinity of Kaktovik
• Administrative exchange, not approved by Congress
• Congress later prohibited the Secretary from
  making these types of exchanges

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7(i) Settlement Agreement

• Among all Regional Corporations
• Does not include Village Corporations or at-large
  shareholders
• If surface is traded for subsurface revenues
  from the property received in trade shall not be
  subject to sharing under this Agreement or
  Section 7(i). Article II, section 6(g)

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7(i) Settlement Agreement (cont.)

• Effective 6/82
• Presented to court and litigation dismissed 6/83
• No disclosure to Regional Corporations of
  Chandler Lake exchange negotiations or plans, or
  intention not to acquire ANWR through 1431(o)
• No approval by Village Corporations or at-large
  shareholders

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Intentional evasion of 7(i)

• GAO reported that ASRC admitted that it
  specifically structured the Chandler Lake
  exchange to avoid 7(i) sharing, and the
  Department of Interior accommodated ASRCs goal

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Arbitration

• Ahtna, Bristol Bay and Aleut filed arbitration
  for ruling that ANWR subsurface received by ASRC
  was subject to 7(i)
• Arbitration panel rejected claim ruled that ASRC
  ANWR subsurface not subject to 7(i) sharing due
  to 6(g) of Settlement Agreement

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Unequal Value Issue

• Native leaders negotiating the 7(i) settlement
  agreement anticipated that surface-for-subsurface
  exchanges would be based on substantially equal
  value

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Unequal Value Issue (cont.)

• According to 1989 GAO report
• ASRC gave 6M
• ASRC received 395M
• Current value of ASRC subsurface
• Unknown, but probably exceeds 700M 1B
• ASRC has received 30M for seismic data to date

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Arguments that ASRCs ANWR should be subject to
7(i)

• Alaska Natives gave up a lot in ANCSA to enable
  ASRC to obtain North Slope oil for the benefit of
  all Alaska Natives
• Calista and Bristol Bay gave up land in land
  loss formula so ASRC and other regions could
  receive more land
• Ahtna allowed the TAPS pipeline across its lands
  without additional compensation
• Chugach allowed the Alyeska terminal on its land
  without additional compensation
• Calista, Aleut, and Sealaska gave up highly
  valuable fishing rights (and hunting)

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Arguments that ASRCs ANWR should be subject to
7(i)(cont.)

• Congress contemplated in ANILCA 1431(o) that
  ANWR subsurface would be subject to 7(i)
• Regional Corporations had similar expectation in
  1982 when negotiated Settlement Agreement
• Regional Corporations also expected that
  surface-for-subsurface exchanges would be based
  on substantially equal value

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Arguments that ASRCs ANWR should be subject to
7(i) (cont.)

• Exchange agreement was not disclosed in
  negotiations, and was specifically intended to
  avoid 7(i) revenue sharing
• United States consistently refused other Regional
  Corporations offers to exchange surface for
  subsurface
• Inconsistent with Congressional intent expressed
  in ANILCA 1431(o)
• Lack of sharing will lead to huge disparities
  between regions, contrary to 7(i) objective
• Without ANWR, future distributions under 7(i)
  will substantially diminish

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Arguments Against ASRC 7(i) Sharing in ANWR

• Settlement Agreement binds regional corporations
  and explicitly makes this deal non-sharing
• Arbitration in 1989 addressed issue already
• ASRC made a risky investment in the land trade
  with no guarantee ANWR will ever open
• Other regions were attempting similar deals at
  the time and afterwards to avoid revenue sharing
  (none were successful)

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ANCSA Amendment

• See handout for text of amendment
• S. 449, became Public Law 109-112 (March 13,
  2006)
• Amendment championed by Doyon and Sealaska
  because they want to issue stock to descendants
  of shareholders
• Only a few ANCSA corporations have issued new
  stock to descendants and missed enrollees

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ANCSA Amendment

• ANCSA, pre-amendment and state corporate law,
  required an amendment to articles of
  incorporation for issuance of new stock
• the standard was a majority of outstanding shares
  (50 1 of outstanding shares) at a proper
  meeting of shareholders
• Problem was that attendance at shareholder
  meetings (in person proxy) creates a
  super-majority vote of those actually voting
• E.g. Doyon historically averages in mid- to
  high-60 of attendance making.
• If 65 attend meeting in person or by proxy, the
  vote at the meeting must be almost 77 in favor
  of amendment

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GAO Report

• Contract Management Increased Use of Alaska
  Native Corporations Special 8(a) Provisions
  Calls for Tailored Oversight.
• Issued April 27, 2006 (available at
  http//www.gao.gov/new.items/d06399.pdf)
• 87 pp. in total with appendixes
• Requested by House Committee on Small Business
  House Committee on Government Reform Re. Young
  House Committee on Homeland Security Senate
  Committee on Small Business and Entrepreneurship