ANCSA Section 7(i), Part 2 of 3 Parts
procedures to the settling corporations than ASRC applies to CIRI.
In the event ASRC entered into a settlement agreement for cash with an aggregate value exceeding $500,000, any amount in excess of that amount would be treated as Net Section 7(i) Revenues, and ASRC would distribute to CIRI a set amount over the $500,000 by an agreed upon formula. CIRI’s president Roy Huhndorf and ASRC’s president Jake Adams signed the agreement on November 20, 1986.
No executive official can formulate Indian policy; every action taken by an Executive official must be authorized by Congress.
Newspaper story on June 10, 1988:
Under the 1983 deal based on acreage only, Arctic Slope traded about 101,000 acres of land surface it owned in the Gates of the Arctic National Park, worth an estimated $5 million, for about 92,000 acres of promising subsurface oil lands in the Arctic Refuge, valued at $388 million. ASRC received $25 million in cash from the oil companies. Another $14 million had been deposited in escrow for release upon enactment of a development bill, and the corporation is receiving about $900,000 a year in rental payments under a 10-year agreement with the oil companies.
The ASRC trade created a rift in the Alaska Native community. They called Arctic Slope’s deal “intolerable for all Alaska Natives. Jake Adams president of ASRC said:
“There is no precedent in American law for a large number of for-profit corporations asking Congress to take away the vested property rights of the shareholders of another corporation. Other ANCSA corporations and their shareholders are the ones who had their property rights taken away.”
GAO Report: As to the point raised by Mr. Rude, that the Chandler Lake Land Exchange was structured in a way to make inapplicable the section 7(i) revenue sharing provisions of ANCSA the Government Accounting Office audit explained as follows:
The Chandler Lake exchange was structured in a way that the other Alaska Native Regional corporations did not participate in its financial benefits. Since 1984, ASRC has received about $30 million from its oil company partners for the exclusive right to conduct exploratory activities and to acquire oil and gas leases on the lands. However, a provision of ANCSA calling for the sharing of oil and gas revenues with 11 other regional corporations was not applicable to the exchange.
When the Congress enacted ANCSA to settle land claims made by the various Alaskan Native groups, it provided for a sharing of income from mineral and timber resources among 12 Native regional corporations. Specifically, Section 7(i) of ANCSA provided that, Seventy per centum 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 12 Regional Corporations organized pursuant to this section according to the number of Natives enrolled in each region.
If ASRC had acquired the subsurface rights to ANWR under the provisions of ANILCA, it would have had to share 70% of the revenue it received with 11 other regional corporations. However, the Chandler Lake exchange was structured in a way that the revenue sharing provisions of ANCSA did not apply. This occurred because ASRC exchanged surface interests in the Chandler Lake lands for the subsurface estate in ANWR. According to a 1982 Section 7(i) settlement agreement, approved by 12 Alaska regional corporations, the revenue-sharing provisions of ANCSA would apply in this case if subsurface interests had been exchanged for subsurface interests. Thus, because ASRC exchanged surface interests for subsurface interests, none of the other regional corporations have shared in any of the revenue that ASRC has already received from its oil company partners, and they may not share in any of the revenues ASRC will receive in the future for leases, royalties, and other payments involved in this exchange, if ANWR is opened to oil and gas development.
We asked ASRC and Interior officials why the exchange had been structured in this way. ASRC’s attorney said the corporation acted to protect its own interests and retained the subsurface rights of the Chandler Lake lands because they wanted to minimize the revenue sharing effects of the ANCSA provision. The former Deputy under Secretary told us that he was willing to accommodate ARSC on this point.
GAO Report/RCED-90-5: As earlier noted, ARSC traded away surface land interests in the Brooks Range and secured subsurface interests in the coastal plain of the Arctic National Wildlife Refuge under-lying the Kaktovik Inupiat Corp. selections. Our understanding is that ASRC firmly believes that, under the exchange, section 6(g) of the 1982 settlement agreement among the regional corporations governs the land obtained by the corporation under the Chandler Lake Land Exchange, the relevant language of the agreement reads as follows:
Section 6. Disposition of ANCSA Lands by Trade. Where a corporation, by trade with a third party, disposes of land conveyed to it under ANSCA (by patent or interim conveyance), no revenue shall be recognized at the time of the trade and the rules set forth below shall apply concerning recognition of Gross Section 7(i) Revenues. (g) If surface is traded for surface, or for subsurface, revenues from the property received in trade shall not be subject to sharing under this Agreement or [under] section 7(i).
The report concluded with: Under the circumstances, we may expect ASRC to assert that it entered into the Chandler Lake Land Exchange in reliance on language of the comprehensive agreement negotiated among, the presumably satisfactory to, all 12 regional corporations, a settlement has been applied or used by the courts to dismiss protracted litigation among these same parties over resource revenue sharing issues.
The negotiations for the 7(i) agreement were conducted by a small group of corporate officials and the terms of settlement were not disclosed to the ANCSA shareholders and the general public. Most regional corporate directors may not have been aware of the provisions and effects of the agreement and it is believed that many of the Native directors even read the 121 page document before it was signed by the regional corporation presidents. The regional corporation presidents signed the settlement agreement on June 29, 1982. The last regional corporation ratified the 7(i) settlement agreement on November 16, 1982. CIRI ratified the agreement on Sept. 17, 1982. The Agreement was signed by CIRI’s president and before its board meeting on Sept. 12th, 1982.
Anaktuvuk Pass Land Exchange and Wilderness Redesignation Act of 1995 provided in section 103(a) the conveyance of 30,642 acres if Federal land located inside of the boundaries of the park (Gates of the Arctic National Park) to ASRC and the Nunamiut Corporation in exchange for 38,840 acres of corporation land located within the park boundary; the reauthorization of approximately 73,933 acres of existing wilderness within the park; the designation of approximately 56,825 acres within the park as new wilderness; the conveyance by ASRC and Nunamuit Corp. of surface and subsurface development rights approximately 116,435 acres within the boundaries of the park to the United States.
Section 105(a) provided that any lands or interests therein conveyed to and received by ASRC or Nunamuit Corporation pursuant to the agreement shall be deemed to have been conveyed and received under section 22(f) of ANCSA. This subsection states that all of the lands and interests therein conveyed pursuant to this agreement shall be conveyed subject to valid existing rights.
Under the Appendix 8(p) it stated: No member of or delegate to Congress, or Resident Commissioner, shall be admitted to any part of this Agreement or to any benefit that may arise there from; but this provision shall not be construed to extend to this Agreement if made with a corporation for its general benefit.
In the House of Representatives (Jan. 4, 1995): Mr. Young of Alaska introduced the following bill; which was referred to the Committee on Resources. A Bill to amend ANCSA and for other purposes: Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled.
Section 5. Native Allotments: Section 1431(o) of the Alaska National Interest Lands Conservation Act (94 Stat. 2542) is amended by adding at the end of the following: (5) Following the exercises by Arctic Slope Regional Corp. of its option under paragraph (1) to acquire the subsurface estate beneath lands within the National Petroleum Reserve-Alaska selected by Kuukpik Corporation, where such subsurface estate entirely surrounds lands subject to a Native allotment application approved under Section 905 of this Act, and the oil and gas in such lands have been reserved to the United States, Arctic Slope Regional Corporation, at its further option, shall be entitled to receive a conveyance of the reserved oil and gas, including all rights and privileges therein reserved to the United States, in such lands. Upon the receipt of a conveyance of such oil and gas interests, the entitlement of Arctic Slope Regional Corporation to in-lieu subsurface lands under section 12(a)(1) of the Alaska Native Claims Settlement Act (43 U.S.C. 1611 (a) (1)) shall be reduced by the amount of corporation for its general benefit.
Newspaper story: The House sidestepped concerns of Alaska villagers and the Interior Department Tuesday and approved a package of Native Legislation containing controversial provisions inserted by the state’s congressional delegation—some without any public debate
While some of the bills provisions were widely supported, several last minute additions in the Senate weren’t. One of them, by Sen. Ted Stevens, wipes out a lawsuit trying to force larger Native regional corporations to share their riches with village corporations from a 1986-87 tax break.
Handbook of Federal Indian Law by Felix Cohen, 1982 edition, page 750: It has been determined that qualifying revenues are subject to the sharing formula even if they were received by the regional corporation before the acquisition of a fee patent to the land from which the revenue was derived. The federal district court has found that the sharing requirements of section 7(i) apply to any revenues or benefits “generated because of, and in exchange for, the acquisition of an interest in the timber resources and sub-subsurface estate received by a regional corporation pursuant to ANCSA.” Thus the sharing of “all revenues [under section 7(i) include[s} benefits of every sort” received by a region from subsurface and timber resources, non-monetary benefits, and revenues received because of the potential existence of resources, whether or not they are ever produced. Accordingly, revenues subject to sharing have been held to include payments for surface damage compensation for consent to enter the surface and for assistance in obtaining the consent of other land owners, and sums paid to the corporations under contractual arrangements that attempt to shield their true nature as revenues from the subsurface estate.
Bayview , Inc. a village corporation and shareholder Lewis Olsen sued all 12 regional corporations claiming the NOLs based on subsurface values (possibly $500,000,000) were shareable under section 7(i) of ANCSA. The court concluded that Congress did not intend to create a direct cause of action for either such village corporations or at-large shareholders against a regional corporation with which neither of them is associated geographically or through ownership. The court concluded that Mr. Olsen had an adequate state law remedy; and by bringing this action against the defendants, Mr. Olsen sued the wrong party. (He should have sued Bristol Bay Corp.). The court concluded that plaintiff Olsen’s complaint against all of the defendants must be dismissed. In reaching this conclusion, the court does not overlook the fact that, unlike Mr. Olsen, a village corporation does not hold stock in a regional corporation and is therefore unable to bring a derivative suit. A shareholder derivative suit is not, however, the only possible remedy available here. The court assumes without deciding that there is at least the possibility of a state law cause of action by villages against their regional corporation for failure to enforce rights under ANCSA as to which the villages have interest. The defendant’s motion to dismiss was granted on July 6, 1995. Motion to dismiss was submitted by defendants, ARSR and Jacob Adams.
To end any possible future legal claims on sharing NOLs under Section 7(i), regional corporations introduced federal legislation which was enacted.
October 14, 1996 report from CIRI CEO on legislation passed by the 104th Congress included: NOL-Confirming NOLs not shareable under section 7(i).
December 15, 1991 newspaper story:
In 1989 Calista Corp., asserted that most of the $576 million that regional corporations earned from selling losses under a 1986 tax law should be treated as 7(i) revenue. Most of the losses were created by selling timber, asbestos and other natural resources for far less than their values when claimed by the regional corporations. Thus, argued Calista, any income resulting from the sale of such resource-based red ink should be distributed under 7(i). Calista officials felt they had a good case but lacked the money for a costly battle to arbitrate the dispute or take it to court. Instead, they worked out a deal. Calista dropped its challenge to the loss sale money. In return, nine other regional corporations agreed to guarantee up to $9.5 million in loans to Calista. There was no disclosure as to how much each regional corporation guaranteed for Calista nor was there disclosure as to whether the loans were repaid.
Placing Section 7(i) sharing provisions into ANCSA gave other shareholders a vested property right in the lands acquired by ASRC. It has been reported that a USGS study estimated there are 10.6 billion barrels of oil and 73 trillion cubic feet of gas in NPR-A and 10.4 billion barrels of oil and 9 trillion cubic feet of gas in ANWR that could be produced. Although, other regions gave up land rights to millions of acres, they are being denied their fair share of possibly multi-billions of dollars.
Senate testimony Senator Stevens testified:
“I don’t think most people understand that because of the situation in terms of the Alaska Land Claims Settlement Act, when one region gets money from natural resources, it must share with the other 11 regions. The 7(i) concept is the most unique concept in America. That is why all of the Natives in Alaska have an interest in ANWR. If the Natives of the North Slope get money—and they will—from this development, they must share with the other 11 regions (underlining added) Thirty-three percent of unemployed Alaskans are Natives. Twenty percent of Alaskan Natives have incomes below the poverty line. Development of ANWR holds the potential to improve their situation. That is why they are in this city now trying to tell Members that they want ANWR developed.
On page 8: Senator Stevens testified:
Above all, a vote for this amendment is against Alaska Natives who overwhelmingly support development in ANWR because they can balance stewardship and conservation with the development. Alaska Natives would use a portion of the revenues to finance schools, water systems, and health clinics while pursuing their way of life. Again, every Alaska Native will share in the money that is received by the North Slope people. (underline added) They all share because of the bill this Congress wrote, the Alaska Native Land Claim Settlement Act.
“Seattle Times” story on ASRC Included:
The Inupiat Eskimo leaders gained access to the refuge through a controversial land trade that reflected their frustrations with the initial terms of the Alaska land claims settlement. Under the Act, the corporation was allowed to choose 5 million acres of its shareholders’ North Slope homeland. But the best oil field —Prudhoe Bay— already was staked out by the state, and the best prospect—the coastal plain—was initially off-limits because of its protested location within the 1.9 million-acre Arctic National Wildlife Refuge. By 1983, a deal was struck. Arctic Slope swapped 101,000 acres within the Gates of the Arctic National Park for 92,160 subsurface acres inside the coveted coastal plain. A separate Inupiat village corporation took title to the surface estate.
Arctic Slope carefully selected the acreage that extended into two large sandstone structures around the Inupiat village of Kaktovik, which sits at the northeast edge of the coastal plain. Some of this acreage was chosen after a review of seismic test data, and included what was then considered to be among the best oil prospects.
The Government Accountability Office, investigative arm of Congress, concluded that the trade was not in the best interests of the federal government, in part due to the Interior Department’s inability to access the secret drilling data that could help determine the worth of future federal land leases. Arctic Slope rejected that conclusion.
End of Part 2 of 3 Parts