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Panel Hears of Indian Front Companies

February 1, 1989

WASHINGTON (AP) _ Congress is investigating reports that American Indians have been victimized by non-minority businesses that take advantage of Indian preference rules to gain government contracts.

Gevene Savala, a Kaibab Paiute Indian, told the Senate Select Committee on Indian Affairs on Tuesday that she could lose her life savings because she invested it in an asphalt company, unaware that it was being used as a front.

She said she didn’t realize that most of the revenues received by the firm were going to Arizona Refining Co., which has now withdrawn its backing, leaving her company struggling to stay afloat.

Mrs. Savala said the asphalt company was formed by her Mexican-American husband in 1980. She said she invested $90,000 in the business and was named its president.

Her husband, David Savala, did not appear before the committee, but in an immunized statement read by his lawyer he said he had been urged to go into business for himself by his boss at Arizona Refining.

Between 1983 and 1985, the company went from earnings of $800,000 to $10 million. But in 1986 the company’s backer, Arizona Refining, was sold and quit bonding Savala Asphalt and Construction Enterprises, Inc.

Mrs. Savala said her company’s revenues plummeted to $1 million, leaving the Savalas with big bills to pay.

Her story was one of several told by witnesses before the committee, which is investigating contract fraud and other alleged corruption on reservations and among those doing business with Indians.

In his statement, Mrs. Savala’s husband said: ″I had no intentions of starting my own company, nor did I have the means to do so. ...

″However, Mr. (James) Bagley guaranteed that if I created my own business, my income would at least double, and promised that I would not incur any losses.″

Savala said Arizona Refining performed virtually all of the functions of his company, including preparing bids for road projects.

When contracts were awarded to Savala, Arizona Refining would be the sole source of materials for the jobs, he said.

″I would appear on site to do exactly what I had been doing as an employee of Arizona Refining - drive a truck and lay the petroleum products provided by Arizona Refining,″ Savala said.

But when Arizona Refining quit guaranteeing his company through its bonding, Savala had trouble getting contracts.

He was forced to cut back, leaving him with high unemployment taxes for laid-off employees and high insurance rates based on his high-grossing years.

In earlier testimony, Jefferson Begay, a Navajo Indian who owns a construction company in Arizona, said most of his competitors for Indian preference contracts are fronts.

″They give him (the Indian) a pickup truck and a salary and make him Mr. President, bidding on Indian set-aside jobs,″ he said of the relationship between the front companies and non-Indian backers.

He said Indians go along with the process because it is extremely difficult for them to get bonding on their own, and without that guarantee from lending institutions, they don’t get any business.

Richard James Elroy, an FBI agent who has investigated Indian contracting, said the problem of front companies is pervasive.

He said they are not prosecuted because the law on Indian set-asides is vague.

″In most of the cases the participants violate the intent of the Indian preference law, but not the letter,″ he said.

He said more specific legislation is needed to give prosecutors something stronger to enforce.

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