Telecom deal said to violate law

Federal authorities announced Monday that a long-standing, exclusive agreement between the Hawaiian Homes Commission and embattled telecommunications provider Sandwich Isles Communications Inc. violates federal law, a decision that raises new doubts about the company’s future.

The Federal Communications Commission has already imposed $76 million in penalties against Sandwich Isles and has cut off most of the federal subsidies that formerly flowed into the company to support telecommunications services to about 3,600 customers on Hawaiian homelands.

Sandwich Isles’ lawyers alleged in formal filings earlier this year the FCC is now attempting to drive the company out of business “at all costs.”

On Monday the FCC announced that a crucial agreement Hawaiian Homes entered into 21 years ago with Sandwich Isles serves to limit competition among telecommunications carriers on Hawaiian homelands in violation of the Telecommunications Act of 1996, and therefore cannot be enforced.

Hawaiian Homes in 1995 granted the exclusive license in perpetuity to Waimana Enterprises Inc. to provide telecommunications services on the more than 200,000 acres of Hawaiian homelands statewide. Waimana then partially transferred that license to its subsidiary Sandwich Isles, which provides telecom services to most homesteaders.

Sandwich Isles launched ambitious plans to built a new telecommunications network and tapped into enormous federal telecommunications subsidies to finance the system. Over the years the company eventually drew more than $249 million from the federal Universal Service Fund, which is financed through fees collected from telecommunications customers across the country.

Sandwich Isles also borrowed more than $166 million from the U.S. Department of Agriculture’s Rural Utilities Service to finance construction of its network. The exclusive license SIC has with Hawaiian Homes was a critical factor there because Rural Utilities officials would agree to the loans only if the license was in place, according to filings this year with the FCC.

Albert Hee, founder of both Waimana and Sandwich Isles, was convicted of federal tax fraud in 2015 and sentenced to 46 months in federal prison for concealing from the IRS that his company deducted $2.75 million as business expenses it had paid to cover Hee’s personal expenses.

Among the supposed business expenses cited by prosecutors were $718,559 the company paid for college tuition and living expenses for Hee’s three children, $92,000 in payments for massages for Hee and $121,878 in credit card charges made by Hee for personal expenses, according to federal court filings.

Hee also emerged over the years as a generous source of funding for federal political campaigns, donating more than $45,000 to federal candidates and their committees since 2000, and contributing more than $60,000 to the Obama Victory Fund in 2011 and 2012. He also donated more than $50,000 to various Democratic Party organizations since 2008, with most of that money going to the DNC Services Corp., which supports the Democratic National Committee.

In the wake of Hee’s criminal conviction, federal officials halted most of the federal subsidies paid to Sandwich Isles. USDA officials disclosed last year that Sandwich Isles still owed the agency more than $108 million and had defaulted on at least some of its USDA loans as early as 2013 and 2014.

Legal questions

In February, Hawaiian Homes Commission Chairwoman Jobie Masagatani asked the FCC to decide whether the exclusive agreement the agency had with Sandwich Isles might violate federal law. Her request suggested HHL might look to sever its relationship with Hee’s companies, but a spokeswoman for the department refused to say at the time whether HHL might be considering that option.

Hee, who is serving his sentence in the Federal Bureau of Prisons’ Rochester Federal Medical Center in Minnesota, was clearly unhappy with Masagatani’s inquiry to the FCC.

In a letter to the commission, Hee described Masagatani’s inquiry as “an obvious attack by DHHL and FCC on the rights of Native Hawaiians and trust beneficiaries to receive benefits under these rural utility programs that are supposed to be available to all citizens of the United States.”

Hee also argued the license is a legal exercise of Hawaiian Homes’ authority, and that the FCC knew of the exclusive license “from the outset.”

The FCC disagreed and, in a 13-page decision issued Monday, found federal law requires the commission to pre-empt enforcement of the agreement between HHL, Waimana and Sandwich Isles. Federal law does not allow state or local governments to designate just one entity to provide telecom services in a state or locality, according to the decision.

William Aila, deputy to the Hawaiian Homes chairwoman, said the agency would not be able to comment on the FCC decision until the department’s lawyers have reviewed it.

Sandwich Isles also declined to comment on the decision Monday, but lawyers for Hee’s companies have been sharply critical of recent FCC actions.

In one filing with the commission in March, lawyers for Sandwich Isles said the FCC’s recent conduct demonstrates “without question that the FCC made a decision long ago to put SIC out of business, no matter what the record evidence showed or controlling law required, and no matter the impact on SIC’s subscribers.”