Federal agents arrested an executive with an Alaska Native corporation subsidiary Tuesday for his alleged role in a massive kickback scheme likely to intensify scrutiny of the federal contracting privileges Native corporations have used to make billions of dollars.
Federal prosecutors have charged Harold F. Babb, the director of contracts for Eyak Technology LLC, which has offices in Virginia and Anchorage. The firm is owned by Eyak Corp., the village corporation for Native shareholders in Cordova.
Babb and the three others arrested live in the Washington D.C. area, where the crimes allegedly occurred and where they are being prosecuted. Two of those arrested are Army Corps of Engineers officials who administered the Eyak Technology contract.
U.S. Attorney Ronald Machen called it "one of the most brazen corruption schemes in the history of federal contracting."
Prosecutors say the $20 million bribery and kickback scheme involved the corrupt Army Corps of Engineers officials using the money for BMW's, Rolex and Cartier watches, flat-screen televisions, first-class airplane tickets and international properties.
The scheme revolved around an Eyak Technology five-year, $1 billion federal contract for software and information technology. The Army Corps administered the contract for Eyak Technology, which is known as EyakTek.
The Anchorage corporate office of Eyak Corp. said it could not comment on the charges. Chief Executive Rod Worl said in a statement that its subsidiary is cooperating in the investigation and that the arrested executive, Babb, was fired.
EyakTek is one of the most successful Alaska Native corporation subsidiaries, which take advantage of the bidding advantages that Congress, led by Alaska Sen. Ted Stevens, provided to Alaska Native firms in the 1980s and 1990s. The arrest of its executive comes as the sole-source contract advantages are under scrutiny in Congress, with questions about how much of the money goes to improve the lives of Alaska Natives and how much is passed to big companies in the Washington, D.C., area.
Sen. Claire McCaskill, a longtime critic of the Native corporation bidding advantage, sent a written statement to the Associated Press on Tuesday saying that the federal charges expose problems with the "large no bid contracts that Alaska Native Corporations are allowed to enjoy at the expense of American taxpayers."
"The Alaska Native Corporations should compete for these large contracts and further should not be allowed to 'front' for other corporations that are actually doing the work," McCaskill, a Missouri Democrat and chair of the Senate Committee on Contracting Oversight, said in the statement.
The group Native 8(a) Works, set up by Native organizations to counter such criticism, sent out its own statement in response to EyakTek's involvement in the scandal.
"At a time when Native corporations' status as 8(a) contractors is constantly under attack, we hope that the alleged actions of one company will not contribute to further misconceptions about Native 8(a) contractors and the value they deliver to America taxpayers," the statement said. "The alleged wrongdoing by a few individuals is exactly that -- the actions of individuals..."
"8(a)" refers to the federal rule that designates 23 percent of government work for small and disadvantaged firms. Alaska Native firms get certified for minority business contracting under the rule.
The allegations involve EyakTek subcontracting work on its $1 billion federal contract to a Virginia firm that is identified in the indictment only as "Company A." Prosecutors allege the chief technology officer for "Company A" would then submit fraudulently inflated invoices for the work.
One of the corrupt Army Corps of Engineers officials would approve the invoices, prosecutors say. The federal payment would go to EyakTek, which subtracted its profit margin and paid the rest to "Company A," according to the indictment.
The inflated invoices allegedly totaled about $20 million between 2007 and this year, according to the indictment. The chief technology officer of "Company A" would allegedly funnel shares of the extra cash to Eyatek executive Babb and the Corps of Engineers officials who were part of the scheme.
The indictment says Eyaktek's Babb was paid or promised more than $700,000. Among other things, prosecutors say he received cash, first-class plane tickets and promised future employment at "Company A."
The arrested Army Corps of Engineers officials are Michael Alexander and Kerry Khan, both of Virginia. Prosecutors say Khan, a program manager in the Army Corps, was promised or paid more than $18 million for his involvement.
Khan's 30-year-old son, Lee, was also arrested. Prosecutors said he was involved with his father in a consulting company that was part of the scheme.
Along with the luxury cars, watches and home improvements, prosecutors allege the Khans agreed to transfer $383,000 to a family member who was jailed on a drug trafficking charge and threatened to blow the whistle on the contracting scheme.
The four defendants were arrested Tuesday morning as federal agents served search warrants at seven locations in Virginia and Washington, D.C. There are warrants to seize three luxury cars, seven high-end watches and funds from 29 bank accounts. Federal prosecutors are also seeking the forefeiture of 16 properties in Virginia, West Virginia and Florida.
The Associated Press reported that the four defendants appeared in federal court for an arraignment a few hours after their arrest. They wore street clothes but with their feet shackled so they could only take small steps into the courtroom. Their attorneys entered pleas of not guilty on their behalf but said they hadn't even had time to closely read the 42-page indictment
Kerry Khan and Alexander face a maximum of 40 years in prison. Babb faces up to 35 years, and Lee Khan faces a sentence of up to 25 years.
Reach Sean Cockerham at scockerham@adn.com or 257-4344.
By SEAN COCKERHAM
Anchorage Daily News