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Week of 9.1.08

Transcript: Alaska: The Senator and the Oil Man

BRANCACCIO: Big news out of Alaska this week—the Senate's longest serving Republican, Ted Stevens— indicted in federal court on seven counts of public corruption. Stevens is accused of failing to report hundreds of thousands of dollars worth of gifts from what was Alaska's biggest oil services company. Stevens says he's innocent. But context is everything and what you need to know is that this case has already sent three Alaskan state officials to prison and dozens of others are said to be under investigation. Senior correspondent Maria Hinojosa and producer Kathleen Hughes have been reporting on this story since last year...and here's the latest.

HINOJOSA: It was a bad week for Ted Stevens...One of Washington's most legendary politicians.

Yesterday he reported to federal court to answer prosecutors' charges that he lied about taking gifts from an Alaskan oil pipeline company called VECO.

FRIEDRICH: Senator Stevens accepted gifts from a privately held company known as VECO.

HINOJOSA: At 84, Stevens has been the senator from Alaska for an astonishing 40 years....now he's facing prison time and the indictment means he will have to give up his leadership positions in Congress, where he's held sway over billions of dollars in federal contracts.

Stevens promises he'll be vindicated.

But to understand the events behind the case you have to know something about Alaska and VECO, that oil company, and the way it did business with the old boy network inside the state legislature.

Our story starts here, in Juneau...the Capitol of Alaska ... inside the Baranoff Hotel, suite number 604. It's a non descript hotel room...but this is a room with a view...a view of the state legislature...and it was here, back in 2006, that the FBI hid a tiny camera— and began documenting a tale of corruption that's as petty as it is profound.

ALLEN: We've got to produce...

HINOJOSA: March 4, 2006 -10:50 pm. 70 year-old Bill Allen is meeting with his vice president Rick Smith...Together they run a multi million dollar oil services company called VECO. Bill Allen, that's him on the right, has got a foul mouth, and as you'll see in a minute, a wad of cash in his front pocket.

ALLEN: Right now. Right NOW. Right now, me and you have to produce.

SMITH: I know, I know ...

ALLEN: Me and you have to f—-ing produce.

HINOJOSA: Produce. What they're talking about producing is a tax package that would save the oil companies billions....and where they want to produce that is inside the state legislature...and now, thinking that no one is listening they talk about how to make it happen.

SMITH: You have to get dirty and you have to produce. I understand that.

ALLEN : Right here. Right here in this motherf——g place.

I know.

HINOJOSA: Boozing it up here in suite 604, Allen and Smith plan on getting down and dirty with state legislators. They will be seen and heard bribing state lawmakers to do their bidding. ON this day they're joined by state representative Pete Kott. He's joking about his illegal quid pro quo.

KOTT: I had to get it done. Cause I had to come back and face this man right there. I had to cheat, steal beg, borrow and lie.

SMITH: Well, that will stay in this room.

ALLEN: You got it boss

HINOJOSA: But it didn't stay in this room. This along with hundreds of hours of audio tapes and video ended up with the FBI. Almost two years later, 3 people have been convicted in the scandal, four have pled guilty and two others are awaiting trial. It's not yet clear how many more officials sold their souls to the devil. But the scandal has already blown up the state's longstanding Republican power base.

I came here last October to try and get a sense of the magnitude of this story.

My first stop, the Anchorage Daily News, Alaska's largest newspaper.

DOUGHERTY: It's an earthquake. And we really don't, at this point, know the full dimensions of it.

HINOJOSA: Pat Dougherty is editor in chief

DOUGHERTY: It is turning the established political power of the state inside out.

HINOJOSA: In the year since Bill Allen and his vice president pled guilty to conspiracy— and then started cooperating with federal prosecutors—Dougherty has had no fewer than five reporters covering the scandal full time.

The reporters had covered two trials so far. We were there for trial number three...inside the federal district courthouse in Anchorage.

Vick Kohring, a former Republican state representative was accused of taking bribes from VECO.

The Daily News' Lisa Demer is the courtroom reporter.

As at the end of the day's hearings, Demer rushes back to the newsroom.

DEMER: I'm thinking about opening with a scene of ahh what the juror saw today in the courtroom when they watched the video from Suite 604, and Vic Kohring - sometimes in these videos you can barely make the people out he's there, he's front and center. And it's really an amazing video

ALLEN: Let me help you on that little uh -

KOHRING: Oh, thank you.

DEMER: You know they open up their wallets and they hand him cash.

HULEN: You can actually see cash being passed?

DEMER: You can see, cause it's black, you know it's a little bit grainy video, but you can see, you see bills, and he thanks them profusely.

KOHRING: What can I do at this point to help you guys, anything? DEMER: So I was thinking about opening with that, is that...because it seems like that in a sense is the heart of the case....

HULEN: Okay

HINOJOSA: In court, Demer reported, Kohring's defense attorneys tried to paint him as a little fish...a poorly paid representative who slept on his couch in the capitol building. The paltry $2600 dollars he took in "gifts" sounds small until you realize how little he makes serving the public—less than 25,000 dollars a year.

While Kohring didn't make off with a lot of cash, he did get his hand in the candy jar - twice.

KOHRING: Okay, I won't be shy here, for crying out loud, I'll take more of 'em!

HINOJOSA: Kohring would be the third legislator convicted in the VECO affair.

For reporters here, the FBI sting has begun to answer some of the questions they've been asking questions about Bill Allen and VECO.

Reporter Rich Mauer has been on Bill Allen's trail for years.

MAUER: Journalists don't get to tap phones. Journalists don't get to—to place secret cameras . So, the FBI is listening in on conversations that we thought maybe were happening. But lo and behold they really were, and we're getting to—to hear these things.

HINOJOSA: More than 20 years ago...in 1984...Mauer wrote a series of stories asking why a relatively unknown pipeline company called VECO was sending what turned out to be illegal campaign contributions to senators who would vote against a tax on oil.

MAUER: At that point it was a lot of money, $15,000 for a—for five state senators. $12,000, $15,000 dollars.

HINOJOSA: After Mauer's original report the state elections commission slapped Allen with a hefty penalty. But far from being deterred, Allen was on his way to becoming a big player in state politics.

MAUER: The senators certainly knew who was responsible for giving them the checks, and—and that helped Bill Allen establish himself in politics as a—as a political fundraiser. And that was my first story. That was in August of 1984.

So this is the VECO building. And very quickly, that corner up on the top there, that that was the big, VECO logo.

HINOJOSA: Allan's influence grew along with the company's. Before the scandal broke, VECO was the largest oil services operation in the state, with revenues worth about a billion dollars a year.

It's biggest clients...companies like Exxon, BP and ConocoPhillips, paid VECO to build and repair the crucial pipelines that kept oil flowing.

VECO's Fortunes rose and fell with the oil industry...And Allen made it his business to keep legislators in Juneau working on big oil's behalf. Over the years VECO became the biggest donor to the state's dominant party, the Republicans.

DOUGHERTY: I mean, VECO has been a money machine for the Republican Party in Alaska for 20-something years. So the Republican candidates for office could start their campaigns, as long as they were acceptable to VECO, with guarantees of tens of thousands of dollars in campaign contributions in support.

HINOJOSA: It seems Allen and his cronies even took a perverse pleasure in their power to sway the law. VECO paid $900 to have baseball caps embroidered with the initials CBC - a little inside joke among legislators and Bill Allen...it stood for the "Corrupt Bastards Club"

It may sound like small town dirty politics, but Allen's reach stretched all the way to Washington D.C.

Take a look at these pictures. It's the late 1990s. Here's Bill Allen on a fishing trip in Alaska with some of Washington's then most powerful Republicans. Senate Majority leader Trent Lott, House Speaker Dennis Hastert, Senators Phil Graham, Thad Cochran and Larry Craig.

What did the vacationers have in common? All of them spent time with VECO chief Bill Allen and all are close political allies of Alaska Senator Ted Stevens.

You can't really talk about Bill Allen without talking about his relationship with newly indicted senator Stevens. Stevens is the longest sitting Republican in the U.S. Senate - The man who brings home the proverbial bacon. Alaskans have even come to call him Uncle Ted.

RICH MAUER: He certainly, is responsible for a lot of things that take place here—whether—whether it's—it's federal funds to—to build airports, roads, tunnels, bridges—bridges to nowhere and bridges to somewhere.

PAT DOUGHERTY: He has really become like a godfather who is able to go in and say, "I want some money for these people in Alaska" and, "I want some money for these people in Alaska." And it's a lot of money. I mean, it's more money than we can tally. It's so much money you can't keep track of it.

HINOJOSA: It would only make sense that Alaska's most powerful Republican and the biggest donor to his party would have a close relationship. Ted Stevens and Bill Allen go way back. At one point, along with a group of investors, they even bought a $40,000 Thoroughbred race horse named So Long Birdie.

Over the years, VECO contributed hundreds of thousands of dollars to Stevens's political allies. And in recent years, VECO has been the recipient of more than 150 million dollars worth of federal contracts.

Still even seasoned Daily News reporters were stunned when the FBI did what would have once been unthinkable...in June of 2007 they descended on the Senator's home in Alaska and raided it.

MAUER: This is—really, is the first time the FBI has raided a sitting U.S. Senator's home.

HINOJOSA: The FBI, was looking to see whether VECO and Bill Allen paid to expand the senator's house.

MAUER: It was originally a—a one-story house that they jacked up and—and inserted another first story underneath the s—now, the second story.

So basically doubled the size of the house.

HINOJOSA: In their indictment this week prosecutors charge that VECO rebuilt and then maintained Senator Steven's home... the work was valued at more than $250,000. Prosecutors charge Stevens never paid Allen or VECO for those costs—nor did he disclose them, as is required by law. Prosecutors say Stevens also didn't report other, smaller gifts from VECO, gifts, like a car and a fancy barbeque grill. That may sound a lot like bribery, but Stevens was only charged with failing to report the company's favors.

FRIEDRICH: At the same time that Senator Stevens was receiving these things of value, over that same time period he was also being solicited by VECO to do certain things, which he on— which he or his staff on occasion did. The indictment does not allege a quid pro quo.

HINOJOSA: Since the charges, Stevens has not spoken publicly. But in a statement he said he "never knowingly submitted a false disclosure form."

There's something else Stevens has never spoken publicly about—speculation that his 49 year old son, Ben Stevens will be indicted next. Until 2000, Ben Stevens was president of the Alaska State Senate.

So far the younger Stevens has not been charged in the case.....but at the same time that Ben Stevens was serving in the Alaskan Senate VECO was actually paying him what they called consulting fees: $50,000 a year almost $250,000 in total. In fact, Ben Steven's name comes up frequently on the FBI's tapes from room 604.

SMITH: And we better figure it out, cause Ben's got an agenda, and Ben does not keep him informed like he should, k? Listen, I think the world of the little motherf—, okay? I love 'em, k? Smart, genius, all that bulls—, da da da da.

HINOJOSA: Ben Stevens never shows up on the tapes, but from the way the men in this room speak of him it sounds like he's a member of the Corrupt Bastards Club.

SMITH: I was talking to him about you know we gotta get this motherf——ing think done. How we gonna do it? What did Ben say?

ALLEN: Uh, if he has to he'll put another... conference.

DOUGHERTY: Here's—here's Ben Stevens. He's being—being paid $250,000—by VECO as a consultant. What's he doin' for that money? And—and—you know, unlike his father, Ben Stevens has really done virtually nothing for the State of Alaska.

HINOJOSA: Bill Allen has testified for the prosecution in the Federal corruption trials. It was during the second one that he dropped the bomb about Ben Stevens.

MAUER: What Bill Allen has said on the witness stand was that, "I paid Ben Stevens to essentially to be a state Senator, and work for me as a state Senator." And that's a potential crime under state law, crime under federal law.

HINOJOSA: And as a reporter when you hear that?

MAUER: I say there you go. Let's get that in the paper

HINOJOSA: The political scandal rocking Alaska has done something that was inconceivable just a couple years ago—it has unhinged the state's old boy network and opened the door for reformers.

Into the breach..... an unexpected figure. Sarah Palin, Alaska's governor.

PALIN: Good morning central Huskies:

HINOJOSA: The former beauty queen, small town mayor and mother of five is a conservative Republican who ran for office in 2006 and won, promising to clean up corruption—in her own party.

Before the elections, Palin was considered a long shot. But her plain spoken style and willingness to be tough on the oil industry has made her wildly popular here. With the VECO case constantly in the headlines Palin has already forced sweeping ethics reforms on the legislature in Juneau.

DOUGHERTY: She has a real instinct for politics and she comes in at a time when almost the entire rest of the political culture is discredited. And—you know, she doesn't speak to the chairman of the Republican Party. Because she turned him in for ethics violations when they both served on—the state commission that regulates the oil industry.

HINOJOSA: Last October, Palin proved she means business. She called law makers back to Juneau for a special session. She demanded they vote for the tax increase on big oil that they failed to pass while Bill Allen was handing out bribes in suite 604.

We caught up with Palin as the session was getting underway.

Her proposal— increase the oil profits tax rate about two and a half percent. It doesn't sound like much but with oil selling at more than 120 dollars a barrel it could add up to almost two billion dollars that oil companies will have to pay this year alone.

GOVERNOR PALIN: This is a big darn deal for Alaska. That non-renewable resource, of course, is so valuable it's being sold first at a premium by Exxon, BP, Conoco Phillips. And of course they're fighting us every step of the way when we say, "Well we wanna make sure, especially as it's being sold for a premium, that we're receiving appropriate value."

HINOJOSA: Palin may be talking tough to the industry, but like most Alaskans, she's a believer in big oil. The industry accounts for more than 85 percent of the state's tax revenues. Thanks to oil, Alaskans pay no income or sales tax. And mostly because of the royalties the oil companies pay to the state, each and every resident gets a yearly check from a special fund.

In a State like Alaska, can you in fact—really take on the power of the oil companies?

GOVERNOR PALIN: The oil companies don't own the resources. They have leases and the right to develop our resources for us. And we share a value, we're partners there, because they do the producing for us. But we own the resources.

HINOJOSA: Palin gave legislators 30 days to debate her tax proposal.

During committee hearings,— Palin's opponents—argued that higher taxes may ultimately force big oil to cut back on investments in Alaska, especially as some of the oil fields here are beginning to get tapped out.

Democrats like Representative Les Gara from Anchorage, aren't buying the industry's argument. .

GARA: Their bluff, every, single day, is that if you tax and get your fair share for the people of the state of Alaska, we'll just leave the state. As oil companies will go somewhere else. We know that's a bluff.

HINOJOSA: If they are bluffing, the VECO scandal has, for the first time in decades, given lawmakers like Gara the political capital to call them on it. Bill Allen and his men may be gone Gara says, but the oil industry is still wields a lot of power in these halls.

And Gara says, big oil still has questions to answer about the VECO scandal He pointed to this phone call— taped by the FBI—between Bill Allen and the president of Alaska ConocoPhillips, Jim Bowles.

ALLEN: We want to just see if we can't stop this thing, don't we?

HINOJOSA: The two oil executives are talking about stopping the tax bill.

BOWLES: If there's any way we can get this thing stopped, that's the best possible outcome.

ALLEN: Okay I got work- and it's just between me and you, but I got Pete Kott and uh, Jim, I mean Ben, Ben doing it, and hopefully we—they're gonna to try.

HINOJOSA: At the time of this recording Pete Kott was a representative in the Alaskan house and Ben Stevens was the President of the senate.

ALLEN: Maybe-maybe they can't get it done but they think that—they told me that they thought they could.

BOWLES: Okay, well that's good news. Bill I tell ya what, I think if we can this killed this time we can come back and package up something that works better for the governor and for ourselves.

GARA: That makes you ask the question—what did the folks at Conoco know? What did the folks at Bill Allen tell them about this little scheme they had to defraud the Alaska public

HINOJOSA: Gara and fellow democrat senator Hollis French recently wrote this letter to all three of the state's big oil companies, demanding that they come clean about their relations with VECO.

FRENCH: It's a question. And it's a fair question. And it—and—and as I'd said before, it's a question in the minds of—of tens of thousands of Alaskans.

HINOJOSA: All three oil companies have denied knowing about VECO's illegal activities. Conoco Phillips wrote back to the lawmakers saying "there is no indication that ...Conoco Phillips was involved in, or had any knowledge of the illegal acts...."

But ultimately Bill Allen may have cost the oil industry—billions. Last October Governor Palin got what she wanted. The Special Session ended with legislators voting to increase the tax rate on big oil.

Back in the newsroom, the Anchorage Daily News reporters consider the fall out.

Can you ever have a situation where Alaska politics—can be independent from the oil industry and the money and power that they wield here?

DOUGHERTY: I would say history suggests not. Because I don't think that there has been a time in—Alaska in the last 25 years, 30 years, in which the state was not—really being pushed around by the oil industry.

HINOJOSA: VECO has disappeared, bought up by a multinational conglomerate.

But with Senator Stevens' indictment it is clear that the scandal is not going away. And In this election nobody is happier about that than the democrats. Mark Begich is mayor of Anchorage, but he wants Ted Steven's seat in the US Senate.

In a state that hasn't sent a democrat to Washington in more than 30 years...polls now show he's got a chance.

BRANCACCIO: How much influence do oil industry players have over U.S. policy? Check out our exclusive expose of how big oil and gas companies "work" Capitol Hill against the interest of alternative and renewable energies. It's all on our website.

For more on the role of money in politics, check out this week's edition of Bill Moyers Journal, which looks at former lobbyist Jack Abramoff, and the fallout from the nation's other big lobbying scandal.

And that's it for NOW. From New York, I'm David Brancaccio. We'll see you next week.