The embattled Sandwich Isles Communications Inc. owes $108.6 million to the U.S. Department of Agriculture for loans it obtained to finance its telecommunications network on Hawaiian home lands, and has been in default on some or all of those loans for the past two years, according to federal records.

Documents provided by USDA’s Rural Utilities Service in response to a Freedom of Information Act request from the Star-Advertiser show Sandwich Isles was in default on its loan obligations in both 2013 and 2014.

The USDA documents were heavily redacted to conceal most of their contents and did not disclose whether the company made payments toward the loans in either year.

The 2015 report to the USDA on Sandwich Isles’ finances has not yet been filed, but the company faces even greater financial challenges this year than in the previous two years.

The Federal Communications Commission in June interrupted payments of high-cost Universal Service Fund subsidies to Sandwich Isles pending an FCC audit of the company’s finances. That halt in federal subsidies is costing Sandwich Isles about $1.6 million per month and could further jeopardize the company’s ability to repay the money it owes to the USDA.

Sandwich Isles was founded by telecommunications entrepreneur Albert Hee, who was convicted in federal court in Honolulu on July 13 of six counts of filing false income tax returns and one count of corruptly impeding the IRS from correctly calculating and collecting his taxes. Those offenses could draw prison terms of up to three years on each count.

The tax charges revolve around expenses claimed by a company called Waimana Enterprises Inc., which Hee founded in 1988. Sandwich Isles is a wholly owned subsidiary of Waimana.

Hee, 61, was convicted of concealing from the IRS that his company deducted $2.75 million as business expenses that it had paid to cover Hee’s personal expenses. Hee was also convicted of filing false federal tax returns because he failed to list those payments as personal income.

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 the federal indictment.

The indictment also listed $722,550 in payments by Waimana as “wages” to Hee’s children who, the indictment alleged, did little or no work for the company. The indictment also alleged Waimana claimed as wages $590,201 that was paid to Hee’s wife, when she allegedly did no work for the company.

Waimana Enterprises Inc. in 1995 won the exclusive license to provide telecommunications services to customers on Hawaiian home lands, and in 1996 partially assigned that authorization to Sandwich Isles.

Sandwich Isles then took out USDA loans in 1997, 1999 and 2000 totaling $166.7 million to build a network to serve its customers on Hawaiian home lands. According to USDA records, the company has since repaid about a third of that amount, leaving it with a debt of $108.6 million.

Sandwich Isles’ primary source of income has been subsidies paid from the Universal Service Fund, which is financed by a small charge levied nationally on consumers’ phone bills. The fund has paid Sandwich Isles more than $242 million in federal subsidies since 2003 to support its phone and data network.

However, the FCC recently capped those subsidy payments for companies with particularly high per-line costs, which poses a major threat to Sandwich Isles. Under the new FCC rules, the “high-cost” subsidies paid to Sandwich Isles were reduced from nearly $26.8 million in 2012 to less than $16.2 million last year, according to federal records.

The USDA’s annual “Operating Report for Telecommunications Borrowers” obtained by the Star-Advertiser shows Sandwich Isles reported it was unable to meet its federal loan obligations in 2013 and 2014 because of “net operating losses incurred due to the FCC Transformation Order” that reduced the subsidies.

Sandwich Isles had applied for a waiver of that order in 2011, and Hee testified before the Senate Committee on Indian Affairs on June 7, 2012, that if the FCC order capping subsidies were enforced, small telecommunications companies such as his “will quickly face bankruptcy.”

Absent a waiver, Sandwich Isles “cannot survive, (and) this means the Native Hawaiian customers who rely on our service will be left stranded,” Hee said in his testimony to the committee, then led by Sen. Daniel Akaka of Hawaii.

However, the FCC rejected Sandwich Isles’ request to maintain the higher subsidies after federal officials criticized what they described as “excessive” payments by Sandwich Isles to affiliated companies, including Waimana.

The FCC complained in 2013 that Sandwich Isles’ expenses were 623 percent greater than its peer companies with the highest corporate operating expenses, and concluded that “these expenses far exceed any reasonable level.”

The Department of Hawaiian Home Lands did not respond to a request for comment. A spokeswoman for DHHL said in July the agency would undertake a “review and assessment” of Sandwich Isles to determine whether legal problems linked to Hee could affect services for homesteaders.

A spokesman for Sandwich Isles also did not respond to a request for comment. Sandwich Isles has about 80 employees, and provides service to about 3,600 customers on homestead lands.