Associated Industries settles ‘self-dealing’ complaint by paying feds $1 million

The U.S. Department of Labor has settled a claim against a Spokane-based business organization over allegations that its leaders secretly transferred $3 million from a trust fund set up to lower health insurance costs for 800 local businesses to instead enrich their own for-profit company.

As part of the agreement filed on Thursday in federal court, Associated Industries of the Inland Northwest and CEO Jim DeWalt have agreed to pay $1 million to settle the complaint that alleged a misuse of funds. Also as part of the agreement, DeWalt and the organization agreed to pay a $200,000 fine to the Labor Department.

“In agreeing to this order, defendants neither admit nor deny any allegation in the secretary’s complaint,” the settlement reads. “As part of his basis for agreeing to this order, (U.S. Labor Secretary Alexander Acosta) has relied on written and sworn financial disclosures from defendants James DeWalt, Robert G. Bakie, and AIIN.”

Associated Industries of the Inland Northwest is a nonprofit organization formed in 1910 to provide unionization and collective bargaining services to its members, which mostly are small businesses. In 1954, the association began offering health insurance plans for small-business owners who could take advantage of the larger size of the association.

In exchange for those services, the companies pay a monthly fee to retain membership. As of 2017, the membership businesses had fluctuated from 600 to as many as 1,200.

Then in 1992, the organization formed the for-profit Associated Industries Management Services that collects fees to manage health care plans and to oversee the trust fund collectively owned by all the businesses that form the association.

“We serve as an outsourced team or extension of your HR, employment law, safety, and health benefit administration groups to protect and support your workforce,” the Associated Industries website states. “As the business environment changes and becomes ever more complex and regulated, we keep our members informed, prepared, and adaptive so you can stay productive and effective, no matter what comes your way.”

But in 2017, government attorneys alleged that DeWalt and Bakie, AIMS’ former chief financial officer, began in 2009 “prohibitive self-dealing,” or dipping into the trust fund and transferring administrative fees from the nonprofit association to the for-profit management services company.

“As a result of (DeWalt’s and Bakie’s) actions, the trust paid (the for-profit management services company) millions of dollars of additional fees, which were largely taken from financial reserves held by the trust, without disclosing to the employers or employees that AIMS’s fees had been increased or that money to pay for the increased fees was being taken out of the Trust’s reserve funds,” court records state.

DeWalt vigorously denied the allegations in 2017. On Friday, he did not immediately respond to phone messages left at his office and and cell phone.