From left, Navajo Nation President Russell Begaye, Deputy Assistant Secretary for Policy and Economic Development Gavin Clarkson of the Bureau of Indian Affairs and Navajo Nation Council Speaker LoRenzo Bates. Photo: U.S. Indian Affairs

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Bureau of Indian Affairs makes changes to loan guarantee program amid scrutiny

Tuesday, November 14, 2017

The Bureau of Indian Affairs is making changes to a business loan program that has faced renewed scrutiny under the Trump administration.

The official hired by Secretary of the Interior Ryan Zinke to oversee the loan guarantee program helped a tribe secure a $22.5 million loan that has since gone into default. The BIA is now being sued for refusing to back the loan and taxpayers could be on the hook for the debt.

But the failed deal wasn't the only one uncovered during an internal review. Due to limited oversight and inadequate controls, staff at the BIA's Division of Capital Investment (DCI) acted in a way that "created unnecessary risk for loans already considered risky," a report made public on Monday stated.

"As of September 30, 2016, DCI was potentially liable for $606 million in guaranteed loans," the Office of Inspector General at the Department of the Interior wrote in the report.

"Should any of the borrowers default on these loans, it is ultimately taxpayers who would carry out the burden of bailing out the lenders since their obligations are guaranteed by the U.S. government," it continued.

As the report was being finalized this summer, the BIA started tightening the purse strings. One of the biggest changes affects individual Indian entrepreneurs who tend to face the most difficulty in securing loans through commercial banks.

Although the BIA's regulations bar an individual Indian from owing more than $500,000 at any one point, DCI staff regularly ignored the cap. One entrepreneur, for example, was already $2.5 million in debt when the BIA guaranteed another $836,400 loan simply because the individual started a separate business entity to receive it, according to the report.

"DCI must stop approving loan guarantees and/or insurance in excess of $500,000 to entities with fewer than 2 members," the BIA wrote in a September 14 response to the report.

According to the Inspector General, some 23 percent of guarantees to individual Indian entrepreneurs that were sampled violated the cap.

Loans to tribes also suffered from issues. In one instance, DCI credit staff recommended against backing a $16 million loan for a film project but the head of the division approved it anyway "without formally documenting his rationale for disregarding the recommendation," according to the report.

A section about the project is redacted in the report but the loan does not appear to have experienced any problems. The film at issue appears to be the critically-acclaimed Wind River, whose budget was financed largely by the Tunica-Biloxi Tribe thanks to a BIA guarantee.

On the other hand, the $22.5 million loan guaranteed for the Lower Brule Sioux Tribe turned out differently. The deal had been the subject of considerable controversy long before Gavin Clarkson, a citizen of the Choctaw Nation, joined the Trump team in June.

As a consultant, Clarkson helped the tribe secure the loan in order to purchase a Wall Street firm that eventually went belly up. The BIA is now being sued in federal court for refusing to guarantee the remaining $20 million in debt.

Clarkson's ties to the years-old deal have been documented by Indianz.Com and other sources, including The Sioux Falls Leader and Human Rights Watch, an independent group. A 2016 administrative proceeding at the Interior Board of Indian Appeals also offers detailed insight into his role as an economic development consultant for the tribe.

A story last week in ProPublica brought the issue to a much wider audience. According to the report, Clarkson's consulting company received $327,500 as part of the deal. A grand jury even looked into the loan but no one was indicted, a spokesperson for the Inspector General told ProPublica reporter Isaac Arnsdorf.

Despite Clarkson's connections to the failed deal, Secretary Zinke gave him oversight of the loan guarantee program. As the Deputy Assistant Secretary for Policy and Economic Development, his portfolio includes the Office of Indian Energy and Economic Development, where the DCI staff is housed.

Clarkson, whose position did not require Senate confirmation, has been on thin ice since the ProPublica story, according to sources within Interior. One source indicated he plans to step down by the end of the month but no one from the BIA or from Zinke's communications staff could confirm the status of his employment late Monday evening.

Clarkson did not respond to an inquiry sent via e-mail late in the evening. Incidentally, he attended a special Washington, D.C., screening of Wind River in August to help tout the benefits of the loan guarantee program.

If the BIA ends up being held liable for the failed Lower Brule loan, the $20 million cost would dwarf all of the prior claims paid out by taxpayers, according to the report.

"Appropriate controls are important due to the level of risk of this program," the Inspector General stated. "Between 2010 and 2016, DCI paid approximately $12.4 million in claims resulting from defaults, and received an additional claim for approximately $20 million, which had not been paid at the time of our review."

Congress created the loan guarantee program in 1974 to help tribes and individual Indians start businesses. The program was needed because traditional banks were reluctant to finance projects in Indian Country.

Since then, the BIA has provided over $1 billion in loan guarantees, according to a DCI brochure. "Success Stories" cited by DCI include a $23.5 million guarantee to help the Navajo Nation improve telecommunications service on the reservation. A $6 million guarantee enabled the Coyote Valley Band of Pomo Indians open a convenience store in California.

The Lower Brule Sioux Tribe is not listed on the "Success Stories" webpage.

Office of Inspector General Reports:
Stronger Internal Controls Needed Over Indian Affairs Loan Guarantee Program (November 2017)
Summary: Guaranteed Loan to Lower Brule Ignored Risk Factors (March 2017)

Human Rights Watch Report:
Secret and Unaccountable: The Tribal Council at Lower Brule and Its Impact on Human Rights (January 2015)