Dallas Firm's Push to Help Oil Cleanup May Not Be So Clear

A Jones Act Story

By Dave Michaels / The Dallas Morning News
[email protected]

WASHINGTON – When Dallas investment banker Fred McCallister (pictured) told the Senate last week about his effort to get more foreign ships to clean up oil in the Gulf of Mexico, he blamed a maritime law that protects U.S. ship owners and workers.

In fact, McCallister's effort stalled because BP didn't think the skimmers proposed by his firm, Allegiance Capital Corp., could do the job. Yet he told senators that he hadn't gotten any response to his offer, even though BP's response had come a day earlier.

Also left unsaid to the senators or reporters who interviewed him: Allegiance found the vessels with the help of its chairman's brother, Kenneth Mahmood, who served 18 months in prison in Washington state during the 1980s for theft and securities fraud.

McCallister has become an assertive spokesman as Allegiance, a small investment firm with almost no history of political involvement, mounts a public relations offensive to urge BP to hire its vessels. The firm recruited Texas Republican Sens. John Cornyn and Kay Bailey Hutchison to its cause; they endorsed its efforts in news releases issued by Allegiance.

Allegiance says it has made several offers of different ships to BP. After BP turned down its initial proposal, saying the skimmers were too small, the Dallas firm offered larger boats from Greece, Malta, France and Panama. This week, Allegiance said its boats are from the Netherlands. An Allegiance spokeswoman said Wednesday that the company might meet with BP next week about the latest group of ships.

McCallister said he didn't tell the senators about BP turning down his initial offer because he didn't think it was "a final determination." McCallister, an Allegiance vice president, said he didn't know about Mahmood's criminal record.

"I hope to continue the dialogue with BP," McCallister wrote in an e-mail.

Even if BP turns it down, Allegiance has offered vessels directly to Gulf Coast states.

If states contract with Allegiance for its foreign vessels, the maritime law known as the Jones Act could be a problem. The law essentially prohibits foreign vessels from working within three nautical miles of U.S. shores. Ships working for the states would probably be recovering oil closer to the shore. McCallister says he applied for a Jones Act waiver on June 16.

"The bottom line is, at this stage of the game, we are quite frustrated with the fact we haven't had waivers issued," McCallister told the Senate Commerce Committee on June 30.

Push for a waiver

Senate Republicans, led by Hutchison, have said his experience shows the need for legislation to temporarily waive the Jones Act.

A spokesman for Commerce Committee Republicans declined to address Mahmood's background or McCallister's testimony to the committee. He reiterated the need for Hutchison's bill.

"More than two months into the oil spill, there is still no clear process for Jones Act waivers, which are necessary to enable foreign-owned vessels and skimmers to help clean up the spill," spokesman Joe Brenckle said.

"During an environmental crisis, applicants deserve a timely response – and, more importantly, affected communities do. Senator Hutchison's goal all along has been to make all resources available to aid in the cleanup."

Obama administration officials say the Jones Act has not stood in the way of any offers of international assistance. The law does not restrict foreign vessels from working more than three miles from shore. The leaking well is more than 40 miles south of Louisiana.

The administration says it has 550 skimmers working in the Gulf of Mexico, including dozens of foreign vessels that haven't needed Jones Act waivers.

Not fit for cleanup?

U.S. vessel owners have been annoyed by Allegiance's work to get foreign-flagged boats to the scene. One offshore association says the firm's vessels are not specially designed to recover spilled oil, although Allegiance insisted that they could be fitted with skimming arms and do the job.

"What they are really saying is they want to bring over some very old foreign-flagged boats to use in the gulf when there are 70 or 80 U.S. vessels out of work," said Ken Wells, president of the Offshore Marine Service Association in Harahan, La.

"Their efforts have turned into a sideshow for the people who have actually tried to clean up this spill in the gulf."

On June 18, Wells e-mailed McCallister to ask about his plan. He said he got a call from Mahmood instead.

"I understood he was the guy who had the boats," Wells said. When the two discussed the Jones Act, it became apparent that wasn't the main impediment to getting the boats to the gulf. "He said, 'more than a Jones Act waiver, I need a contract.' "

Wells, who has members working for BP, said he offered to help Mahmood find out what the Coast Guard or other agencies needed, but wanted to know exactly what Allegiance was selling.

Mahmood later left Wells a voice mail in which he said: "We can do this together and clean up ... we can start three miles offshore. Everything depends on a purchase order, which you are going to work to help get."

Mahmood, 66, didn't return phone messages seeking comment. He was convicted in 1983 for theft and securities fraud, according to the Washington State Patrol. He entered prison in February 1987 and was paroled in July 1988, according to the Washington State Department of Corrections.

According to articles in The Seattle Times, Mahmood solicited money from people to invest in two private Canadian oil and gas companies. Prosecutors charged him with taking $45,000 from two Seattle women to invest in the companies, but instead he pocketed the money, according to the newspaper. Several other investors lost money in the scheme, but Mahmood was not charged for all of those losses, the newspaper wrote.

A Seattle police official quoted by the newspaper said that Mahmood was "the best con man I ever worked on."

Mahmood is now president of a Seattle-based company, Commodore Inc., which markets yachts, cruise ships and ferries for sale. Its website also says the company provides vessels that house thousands of offshore workers.

Chain of proposals

David Mahmood, Allegiance's chairman, confirmed his brother's past trouble but said his role in finding the vessels was limited.

Kenneth Mahmood handled some discussions with vessel owners and other shipping officials because he has "some of the technical knowledge and expertise," David Mahmood said.

"He'll make nothing out of this deal, other than what I [as] his brother might want to provide him," David Mahmood said. "And believe me, I have helped him plenty in the past."

One company that stands to profit if Allegiance finds a taker for its vessels is Chain Electric, a Mississippi electrical contractor. The company has provided air boats, ATVs and other equipment to BP.

Bobby Chain, the company's chairman, said he brought the proposal to McCallister and Allegiance in the first place, after deciding that housing vessels, skimmers and other boats were needed in the gulf. Chain said he asked McCallister and Allegiance to help find the right ships.

"Just as we are working for them now and supplying a number of boats and other equipment, we would be making some profit on it," Chain said.

Chain said he promoted the offer to BP through the lieutenant governor of Mississippi, Phil Bryant, who "is a good friend of mine." He said Bryant "took a copy of our offer to hand it to" the BP official.

A spokesman for Bryant confirmed that he passed the proposal to BP.

BP "didn't look us up to say, 'Find us some ships,' " Chain said. "We said here is some more equipment we could furnish if you like it."