Alaska Native Law Section:ANCSA 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 ASRC’s 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

Cook Inlet Region Inc. $251.034%

Koniag, Inc.$8.91%

Doyon Limited$3.40%

NANA Regional Corp.$55.27%

Calista Corporation $0.60%

Chugach Alaska Corp., $7.9

1%

Arctic Slope Regional Corp. $110.3

15%

Sealaska Corporation $298.5 42%

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Timeline

12/18/1971ANCSA

12/3/80ANILCA§1431(o)

6/29/827(i) Settlement Agreement

effective date

8/9/83Chandler Lake

surface exchangeagreement re ANWR 10/6/89

GAO Report

8/14/89Arbitration Decision

12/6/95Pres. Clinton vetoes

opening ANWR

1/24/84Chandler Lake

subsurface exchangeagreement re NPR-A

6/3/83Court dismissal of

Regional Corporationlitigation based

on settlement agreement

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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 ASRC’s 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 ASRC’s 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 ASRC’s 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 ASRC’s 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