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the checks to his attention. He recalls that the checks came up in a casual discussion he had with Ms. Collins, and he believes that Senator McCain's published disclosure in the press may have had something to do with Ms. Collins becoming aware that these checks were important. Mr. Stevens called Chris Koch before sending the letter and recalls that Mr. Koch requested that the information be sent to him. Mr. Stevens then recalls learning of the November 1, 1989 press release from Senator McCain which discusses the fact that new information was received from ACC revealing that Senator McCain and his wife had made reimbursement almost four years ago for two trips made by him on ACC corporate aircraft. While Mr. Stevens agrees that the current evidence supports Senator McCain's comments in the press release that, "This shows that I had fully or substantially already paid for three of the five trips that I took on American Continental planes prior to being told earlier this year that there was a travel reimbursement oversight," Mr. Stevens found it curious that the press release only mentioned Senator McCain's travel and not the travel of his family. He was also surprised that Senator McCain had distributed this information to the press without bothering to discuss it with Mr. Stevens. Mr. Stevens believed that he should have been consulted prior to the press release as a courtesy.

Mr. Stevens also received a memo from Nora A. Bailey dated October 13, 1989 (Exhibit 15). Ms. Bailey simply states, "I see from the attached your good efforts failed." The attached was a Washington Post article dated October 12, 1989 which reported Senator McCain's travel reimbursement 10 ACC. Mr. Stevens stated that Nora Bailey was a rar attorney for Ivins, Phillips & Barker in Washington who represented ACC and who worked




with Mr. Stevens in connection with the 1984 and 1985 IRS audit. Mr. Stevens does not

recall to what Ms. Bailey was referring in her memo.

It was after Senator McCain's press release on November 1, 1989, that Mr. Stevens began

10 differentiate Senator McCain's intent between accepting responsibility for reimbursement

of his personal travel on ACC's aircraft as opposed to his family's. In review of the two

$550 reimbursement checks he found in 1989, Mr. Stevens noted that both checks included

a notation that the reimbursement was only for Senator McCain's flights. A review of his

flight schedules as well as the schedule provided by Senator McCain indicated that these

apparently accompanied by his wife and baby sitter on the April 4, 1985 flightand he was accompanied

checks related to April 4, 1985 and August 29, 1985 flights. Senator McCain was

(based on McCain's Jaine 30, 1989


by his wife, baby sitter, and daughter on the August 29, 1985 flight, yet no reimbursement

was made for them on a timely basis. Upon realizing this, Mr. Sievens again reviewed the

5900 reimbursement check dated August 18, 1986 which applied to Senator McCain's


August 23, 1986 Night, previously discussed. After reviewing all three checks in November,
1989, Mr. Stevens began to suspect that Senator McCain had not intended to reimburse
ACC for his family's flight. As additional support to Mr. Stevens' theory, in 1990 he

reviewed the values of the August, 1986 flights which again supported that the August 18,

1986 check applied only to Senator McCain's flight. This fact, coupled with Mr. Smith's
statements in February, 1989 and Senator McCain's late reimbursement of all nighıs in

1989, led Mr. Stevens to his view that Senator McCain had only intended to reimburse ACC

for his personal use of ACC aircraft and not of his family's.




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I then questioned Mr. Stevens about the general policies or practices concerning the personal usage of ACC corporate aircraft. He stated that personal usage of ACG.corporate,

Bland was all chart thanh Mr Keatin aircraft was generally limited 10 ACC employees families. He stated that Senator McCain orice

G was one of only a few non-ACC affiliated individuals who used ACC corporate aircraft for personal reasons. For ACC employees, the value of personal nights taken by them and family members were included as compensation on the employees W-2. After Mr. Stevens arrived, he made it a practice to contact non-ACC individuals taking personal Nights in order to determine the individual's tax identification number for the issuance of a 1099. Mr. Stevens indicated that this was not a practice in 1984 and 1985 and thus Senator McCain was neither billed for the unpaid flights nor was a 1099 issued. Additionally, a 1099 would not have been necessary for Senator McCain's 1986 nights in that Mr. Stevens believed at that time that the Senator had fully reimbursed ACC for his and his family's

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Arnold Mr. Stevensi know of Senator McCain and Mr. Keating's "parting of the

pres accent ways" which occurred after the April, 1987 meetings with the regulators!" He said that although he kept Mr. Keating informed through memos of the income tax issue relating kring to personal usage of ACC aircraft, there was no direction given by Mr. Keating, or any other executive, relative to how to handle the issue of Senator McCain's flights He also of does not have copies of the aforementioned memos.

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As to Mr. Stevens' February, 1989 phone discussion with Mr. Smith, he said that he did




not consider that Mr. Smith was Senator McCain's campaign manager and that he may have been only concerned about Senator McCain's nights during his campaign. He also had no understanding that Senator McCain would, from time to time, book personal travel

on commercial flights through the American Continental Travel Agency and make

reimbursement directly to that company.

Prior to joining ACC, Mr. Stevens worked in the Tax Department of Arthur Anderson. and during this period, he signed off on ACC's tax returns as a paid preparer. While the subject of the deductibility of personal use of ACC's corporate aircraft came up through his reviews, Arthur Anderson was never requested to review this issue specifically.

I asked Mr. Stevens if any of the other Senators involved in the current hearing used ACC

aircraft for personal use. He shared with me a letter that he sent to me on June 7, 1990

(Exhibit 16). A schedule of flights taken by Senator and Mrs. DeConcini in 1984 was

attached. His memo states that Mr. Keating was charged with income for this 1984 flight.

but since the tax impact was not significant, he did not further investigate these flights with

Senator DeConcini's office and has never contacted the Senator to locate reimbursemeni.

I have no record of having received this letter.

Mr. Stevens indicated that, other than the Fountain Square project, he was not aware of

any other joint ventures or business transactions involving ACC, its subsidiaries, and any

of the Senators. He stated that there is nothing that he is aware of that would lead him

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10 believe that the investment by Senator McCain's wife and her father in Fountain Square

was improper.

Mr. Stevens did note that one of his staff members, Trey Marwell, reviewed the

deductibility of the $850,000 in contributions by ACC to Senator Cranston's voter registration groups. Mr. Stevens recalled that Mr. Marwell's conclusion was that these

payments did qualify as deductions and were claimed as such. He has no documentation

regarding this review,

Mr. Stevens again stated that he was very active in the proposed sale of Lincoln in the spring of 1989 and knew that phone calls were being made to various Senators in hopes of garnering their support. However, he again stated that he has no details about any

specific phone calls or other discussions that ACC officials had with any Senators.

Bruce Penczek,

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