Q. How were Alaska Native Corporations created?

Congress passed the Alaska Native Claims Settlement Act of 1971 in response to a rise in native activism and pressure from oil companies to smooth the path for a trans-Alaska pipeline after oil was discovered in 1968. The act allotted 40 million acres of land for division among 12 regional native corporations and 220 village corporations. The law was intended to settle longstanding land claims by Alaska natives and provide economic opportunities. Alaska natives and descendants born before 1971 were allowed to receive 100 shares in their village corporation and regional corporation.

In 1975, a 13th corporation formed to represent Alaska natives residing outside the state. Over the years, some village corporations merged with each other or with their regional corporation. Today there are 198 village corporations, according to the Alaska Division of Banking and Securities.

In 1986, Congress passed legislation that allowed ANCs to participate in the Small Business Administration's disadvantaged business program, known as the 8(a) program, which sets aside federal contracts for minority-owned or other disadvantaged companies. With strong advocacy from Alaska Sen. Ted Stevens, Congress later extended to ANCs additional special 8(a) benefits, such as the ability to win no-bid contracts for any amount and to own multiple subsidiaries in the program. Other participants do not have those advantages.

Q. Why are Alaska Native Corporations in the news?

Over the years, Congress has taken aim at ANCs. As the amount of federal contracting they do has expanded, studies found that the native shareholders of ANCs have not seen the improvements or opportunities promised by the program. In some cases, non-native workers outside Alaska have benefited more.

Most recently, the U.S. Senate Subcommittee on Contracting Oversight held hearings on the 8(a) program and issued reports outlining problems with the contracting preferences given to the companies. Following a recent investigation by The Washington Post, Sen. Claire McCaskill, D-Mo., who chairs the oversight panel, introduced legislation to reform the program.

Last year, ProPublica reported that ANC subsidiaries under criminal investigation received federal stimulus contracts.

Q. How does the SBA's contracting program work?

The SBA's 8(a) Business Development Program was created during the civil rights era to help small and disadvantaged business owners compete in the U.S. economy and gain access to federal contracting opportunities. Minority-owned businesses that fall within SBA size guidelines qualify. Women-owned businesses may participate if they can prove they are disadvantaged because of gender.

Q. What special contracting privileges do ANCs have?

Congress has given ANCs contracting advantages that other minority businesses don't have.

• While other participants are limited to $3.5 million contracts for services (or $5.5 million for goods), ANCs have no limit and often get no-bid contracts worth tens of millions of dollars.
• While other participants are allowed to go through the SBA 8(a) program only once before graduating, ANCs can remain in the program as long as they keep creating new subsidiaries. A firm graduates the program after nine years or when it has grown to meet industry standards for number of employees or annual revenue.
• While other companies have to prove every year that they are economically and socially disadvantaged, ANCs are considered permanently disadvantaged and can stay in the program -- even those that are among the 100 biggest government contractors.
• While other companies have to be run by a minority, ANCs and their subsidiaries often have non-native managers.

Q. How much business do ANCs do?

It's virtually impossible to calculate the income of all ANCs because only some of them are required to file annual reports with the Alaska Division of Banking and Securities.

As far as ANC federal contracting, which can be tracked, the figures have escalated over the years. According to a report (PDF) by the Senate Subcommittee on Contract Oversight, contract awards to ANCs increased tenfold from $508.4 million in 2000 to $5.2 billion in 2008.

Much of that growth has been attributed to ANCs' use of the SBA 8(a) program, which also has exploded over the years. ANCs often rely on subsidiaries to peform the contract work. The number of ANC subsidiaries in the 8(a) program went from one subsidiary owned by a single ANC in 1988 to 203 subsidiaries owned by 58 ANCs in 2009, according to an SBA Inspector General report (PDF) issued in 2009.

Q. Why do some ANCs use subsidiaries and subcontract out their work?

In the years following the passage of ANCSA, native corporations struggled to make money. They lacked business experience and facilities. And because many are based in remote areas with harsh weather much of the year, performing work locally was difficult.

By subcontracting and purchasing subsidiaries located elsewhere, ANCs have been able to expand their business and generate more revenue. But that also has led to an increase in non-native employees outside Alaska.

Q. What do native shareholders receive?

The shares held by natives in their regional and village corporations have no market value because they cannot be sold or traded. But shares can be passed down to family members. So, the only financial benefit shareholders gain is through dividends, which vary greatly from one ANC to the next. Native communities also benefit in areas where ANCs contribute to local social programs, provide scholarships and pay for cultural programs.

Q. Who regulates ANCs?

Congress originally exempted ANCs from the proxy rules of the U.S. Securities and Exchange Commission. At the time, Congress figured that once the companies became financially viable, the shares would become tradable in 20 years. But in 1988, the Alaska Native Claims Settlement Act was amended so that stock restrictions would continue. The stocks can't be traded, so ANCs aren't covered by SEC rules on financial reporting.

ANCs with at least 500 shareholders and $1 million in assets must file annual reports and election proxy statements with the Alaska Division of Banking and Securities. All 13 regional corporations meet that threshold, as do 28 village corporations. But some of the ANCs with the most contracting revenue do not. The division does not review these materials, but rather issues decisions when complaints are filed. The division, part of the Alaska Department of Commerce, has jurisdiction over three areas: false and misleading proxy solicitations; the form of proxies; and the disclosure of required items in a proxy statement. A shareholder with a complaint outside those areas must sue the company under Alaska securities law.