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Mr. Smith said that he thought that it was the Senator's practice to reimburse for the cost of his own flights on the corporate jets, but not necessarily for those of his family. I wrote Mr. Smith a letter dated February 17, 1989. Mr. Smith wrote back March 7, 1989 and copied the Senator's office. This letter indicated that the Senator always intended to reimburse for his own expenses. The letter said nothing about the family's expense.

I heard nothing from the Senator's office on this until early May of 1989. This response came after the bankruptcy of ACC and after a settlement needed to be reached on the IRS audit. (Mr. Keating was ultimately charged with $4,672.22 of income as a result of the McCain family flights). By this time, ACC and Mr. Keating were the subjects of considerable adverse publicity. The Senator's administrative assistant, Chris Koch, stated that it was the Senator's intention to reimburse for all flights. This was promptly accomplished based on information I gave them.

To the credit of the Senator, his office did further research to gather information on charter flights which I had no records of. The Senator also reimbursed for an additional trip his wife took where her name was apparently not entered on the jet's Flight Log.

In October 1989, someone in the ACC accounting department found additional checks which had been written by Mrs. McCain in 1986 to reimburse ACC for flights taken by the Senator in 1985. I notified the Senator's office of this by letter dated October 31, 1989. He distributed copies of this letter to the press (without my consent) as evidence that he intended to reimburse for the flights shortly after he took them.

These facts seem to support the conclusion that the intent of the Senator was always to reimburse for the costs associated with flights on corporate jets that he took personally. I never saw any evidence that he originally intended to reimburse for the cost of his wife and babysitter. On all of the flights for which reimbursement was provided on a timely basis, his wife was also a passenger. This is contrary to his public position that the entire matter was completely an oversight.

I have no idea what the House Rules are and were concerning flights taken by family members. I am not accusing the Senator of any violation of law. I just feel that one of the Senator's advisers or staff, or perhaps the Senator himself, made a conscious decision to not reimburse for the cost of family members. No effort was ever made to reimburse for flights of family members until after the onslaught of adverse publicity following the ACC bankruptcy. Senator McCain's public explanations have not pointed

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I thought a long time before I sent this letter. It would have been much easier to let the matter drop. I am not trying to hurt anyone's political career. But I felt it my duty to make sure that you considered all of these facts before you made your final decision. Should you wish to discuss this further with me, I çan be reached at (208) 368-4650 during the day and (208) 376-3160 evenings and weekends.

cc. Senator Warren Rudman

Mr. Robert Bennett

Sincerely,

David E. Stevens

Per your request, I located information concerning plane flights taken by Senator DeConcini and his wife in 1984. I have attached a schedule which indicates the date and destination of the flights.

Mr. Keating was charged with income for these flights in his 1984
audit. However, since the tax impact was not significant, I did not
further investigate these flights. I never contacted the senators
office of attempted to locate reimbursement.

I'll be forwarding the Riegal letter to you after I get settled in
Boise.

Very truly yours,

David tuma

David E. Stevens

DES/trf

Enclosure

90/06/6004

SPECIAL COUNSEL

May 15, 1989

Mr. David E. Stevens

Director of Taxation

American Continental Corporation

P.O. Box 29099

Phoenix, Az. 85038

Dear Mr. Stevens:

Recently I asked my staff, before they archived old records, to make sure that there were no unpaid bills in those records. During that process, my staff discovered correspondence about travel I took on American Continental's aircraft, but they could find no cancelled checks or other documented evidence that such travel had been paid for. In following up with your office, my staff was able to obtain from you a list of flights I took on your aircraft.

It has always been my policy and directive to my staff to promptly reimburse for such travel. I thought all this travel had been paid for, but I don't have the documentary evidence that this occurred. I deeply regret that this policy apparently had not been complied with in every instance. I also appreciate your prompt assistance in identifying for my staff all such travel in question.

I have enclosed checks in the amount of $1,794.14 and $7,884.32 to provide full payment for all travel that Cindy, my family, and I took on American Continental Aircraft during 1984 and 1985. Again, I regret any previous nonpayment. I was never aware that this situation existed, and I am embarrassed that apparently it did. If your records show that any of these flights were in fact already paid for, please either return that amount or I can have a new check drawn. Please accept my apologies, and please let my Senate office know immediately if you ever encounter any other question in this regard.