Bush Under Fire For Harken's Offshore SubsidiaryReuters
Via Forbes.com
July 31, 2002 - 5:20 PM ET
WASHINGTON (Reuters) - While President Bush served on its board of directors more than a decade ago, Harken Energy Corp. set up an offshore subsidiary in the Cayman Islands, but the White House Wednesday denied it was a scheme to avoid paying taxes in the United States.
As part of its response to a wave of corporate scandals, the White House has railed against the corporate practice of setting up offshore subsidiaries in tax havens like the Cayman Islands and Bermuda to reduce U.S. tax bills. Bush called it "a problem," telling reporters: "We ought to look at people who are trying to avoid U.S. taxes."
Democrats seized on the revelation that Harken Energy set up a Cayman Islands subsidiary in 1989, saying it was further evidence that Bush as a businessman failed to practice the corporate policies he now preaches as president.
"If it is true, I think it gets harder and harder to take his position on corporate accountability seriously," said Senate Democratic leader Tom Daschle of South Dakota.
Lawmakers said the collapse of energy giant Enron Corp. underscored the need to crack down on corporate offshore activities. The Houston-based energy trader had hundreds of subsidiaries in tax haven countries, which critics said it used to avoid taxes.
But White House spokesman Ari Fleischer said Harken's subsidiary in the Cayman Islands, set up as part of an oil drilling venture with the government of Bahrain, was not designed to avoid paying U.S. taxes.
"Under this, any oil that was produced in Bahrain and sold in the United States would have been taxable in the United States," Fleischer told reporters.
In the end, no oil was produced by Harken in Bahrain. "So I think it's a moot question," Fleischer said.
Bush told reporters he "opposed" the Bahrain venture while serving on Harken's board, but offered no explanation why he did so.
Daschle renewed his call Wednesday for the White House to release records of Bush's tenure at Harken. Bush said, "We'll try to answer all your questions," but many Harken documents remained secret.
"Obviously, there are a lot of questions to be asked before we can come to any conclusions about what happened or what didn't happen," Daschle said. "We need to get the facts. ... The administration needs to lay the record straight."
In a letter to Bush, Rep. John Conyers, the ranking Democrat on the House Judiciary Committee, asked the White House to turn over the official minutes of Harken's board of directors meetings from 1989, during which time the creation of an offshore subsidiary in the Cayman Islands was discussed.
"Today's revelations concerning Harken's efforts to establish an offshore tax haven in 1989 appear at odds with many of our current leaders' positions on such efforts and your position," Conyers wrote.
Earlier this month, the White House acknowledged that Bush had received low-interest loans from Harken -- a practice banned under a law the president signed Tuesday cracking down on corporate wrongdoing.
The Securities and Exchange Commission in 1991 investigated Bush's 1990 sale of Harken shares, before the company reported large losses, and ended the probe without taking action.
Copyright 2002, Reuters News Service
Bush, Cheney Under Fire Over Offshore Subsidiaries
Reuters
By Adam Entous
July 31, 2002 - Wednesday - 9:07 pm Eastern Time
Source
In a practice now criticized by the White House and Republicans, U.S. President George W. Bush and Vice President Dick Cheney served in leadership positions at companies that set up subsidiaries in offshore tax havens, according to documents and an analysis of company records released on Wednesday.
Democrats said revelations of offshore subsidiaries created by Harken Energy Corp. (AMEX:HEC - News) while Bush served as a director and Halliburton Co. (NYSE:HAL - News) while Cheney was chief executive offered new evidence that the president and the vice president failed to practice the corporate policies they now preach.
The White House, in response to a wave of accounting scandals at major U.S. corporations, has railed against the practice of setting up subsidiaries in tax havens like the Cayman Islands and Bermuda to sidestep disclosure rules and avoid paying U.S. taxes.
Bush called it "a problem" and said, "We ought to look at people who are trying to avoid U.S. taxes."
The Democrat-led Senate voted on Wednesday to deny lucrative defense contracts to U.S. companies that incorporated offshore this year to avoid taxes. U.S. companies incorporated offshore hold at least $2 billion in federal contracts, including defense contracts.
Lawmakers said the collapse of energy giant Enron Corp. (Other OTC:ENRNQ.PK - News) underscored the need to crack down on corporate offshore activities. The Houston-based energy trader had hundreds of subsidiaries in tax-haven countries, which critics said it used to avoid taxes.
While Bush served on Harken Energy's board of directors in 1989, the company set up an offshore subsidiary in the Cayman Islands, the White House acknowledged. But spokesman Ari Fleischer denied it was a scheme to avoid paying taxes in the United States.
"If it is true, I think it gets harder and harder to take his position on corporate accountability seriously," Senate Democratic leader Tom Daschle of South Dakota said of Bush.
Halliburton, which Cheney ran before becoming vice president, was even more aggressive in its use of offshore tax havens, according to an analysis of company filings with the Securities and Exchange Committee by Citizen Works, a nonpartisan group founded by consumer advocate Ralph Nader.
The number of Halliburton subsidiaries incorporated in offshore tax havens rose from 9 to 44 while Cheney served as chief executive between 1995 and 2000, the group said.
The analysis was distributed by congressional Democrats, who hoped to use it to their political advantage in the November elections. Democrats have seized on the Harken transactions and Cheney's tenure at Halliburton to paint the Bush administration and its Republican allies in Congress as compromised by insider deals and close business connections.
WHITE HOUSE ON DEFENSIVE
Cheney's spokeswoman, Jennifer Millerwise, had no comment on Halliburton's offshore subsidiaries and other business practices. The SEC is currently investigating how Halliburton accounted for cost overruns on construction jobs. Millerwise said the SEC has not contacted Cheney as part of that inquiry.
Fleischer said Harken's subsidiary in the Cayman Islands, set up as part of an oil-drilling venture with the government of Bahrain, was not designed to avoid paying U.S. taxes.
"Under this, any oil that was produced in Bahrain and sold in the United States would have been taxable in the United States," Fleischer told reporters.
In the end, no oil was produced by Harken in Bahrain. "So I think it's a moot question," Fleischer said. Bush said he had "opposed" the Bahrain venture.
Democrats have called on the White House to release all records of Bush's tenure at Harken, including the minutes of company board meetings. So far, the White House has refused.
Earlier this month, it acknowledged that Bush had received low-interest loans from Harken -- a practice banned under a law the president signed on Tuesday cracking down on corporate wrongdoing.
Fleischer said Bush did nothing wrong at Harken. In 1991, the Securities and Exchange Commission investigated Bush's 1990 sale of Harken shares before the company reported large losses. The SEC ended the probe without taking action.
President Discusses Economy, Middle East Following Cabinet Meeting
Remarks by the President in Photo Opportunity with the Cabinet
For Immediate Release
Office of the Press Secretary
July 31, 2002
Source
The Cabinet Room
11:34 A.M. EDT
Partial Transcript:
Q Mr. President, what's your position on American companies moving their headquarters to foreign tax havens? Should it be outlawed? Did Harken do this while you were a director?
THE PRESIDENT: Moving their headquarters?
Q Yes, to foreign tax --
THE PRESIDENT: I don't recall Harken moving their headquarters. I think there was an issue over a arrangement with Bahrain, a drilling venture there, which I opposed, as you may recall, when I was a director of the company.
Q Should the practice be outlawed now?
THE PRESIDENT: I think we ought to look at people who are trying to avoid U.S. taxes as a problem. I think American companies ought to pay taxes here, and be a part -- good citizens. But as far as the Harken issue, we'll try to answer all your questions on that.
Press Briefing by Ari Fleischer
For Immediate Release
Office of the Press Secretary
July 31, 2002
Source
James S. Brady Briefing Room
1:28 P.M. EDT
Partial Transcript:
Q I have some questions about the President's time at Harken Energy. Can you confirm for us that when he was on the board of directors at Harken, that the company set up an overseas subsidiary in the Cayman Islands, which many companies use as a tax haven?
MR. FLEISCHER: Yes. I've looked into this issue that was raised this morning, and let me tell you what I've found about it, because just as I suspected, it's not quite as earlier described. And this, again, deals with one of the most complicated provisions of the tax code where the details matter the most and the facts are found in these details of the tax code.
In the case of this subsidiary, where the parent corporation, located in Houston, Texas, set up a subsidiary in the Cayman Islands dealing with an oil arrangement in Bahrain, under this any oil that was produced in Bahrain and sold in the United States would have been taxable in the United States.
Q Wait, can I follow up?
MR. FLEISCHER: Go ahead, Campbell.
Q I'm confused, then. Why -- I mean, the President's point this morning was that he opposed the deal. And that's not what Dan Bartlett said yesterday, because he was quoted in this article as saying that there was no money made from the oil exploration and, therefore --
MR. FLEISCHER: This is not inconsistent. The President, as a member of the board, did oppose this arrangement with Bahrain. That's a matter of public record.
Q Why did they set up the subsidiary, then, if they were going to be taxed on the oil?
MR. FLEISCHER: Right. Because there are other factors beyond the tax consequences. And that's why I was answering the question you asked about taxes. There are issues involving the assets of the parent company in the event that there was some type of liability action that was brought involving the operations located in Bahrain, in order to make certain that all liability claims were dealt with by the subsidiary responsible for operations in Bahrain. It was a project in the Cayman Islands dealing with those liability issues.
On the tax side of it, though, it's exactly as I thought, and this is covered by what's called Sub-part F of the Internal Revenue Code. Under Sub-part F in this specific example, if they had produced any oil in Bahrain and sold it in the United States, it would, of course, been taxable in the United States.
Q But if he had sold it anywhere else?
MR. FLEISCHER: If it was sold in Bahrain, it would not have been taxable, of course.
Q So they could have sold anywhere in the world and then they would not have had to pay tax on it because they --
MR. FLEISCHER: I don't know about anywhere in the world, but under the tax code, under Sub-part F --
Q So there's only an exemption for the United States? If they would have made profit by selling oil anywhere else, Bahrain included, they would have been tax-exempt because they set up a subsidiary in the Cayman Islands?
MR. FLEISCHER: Well, again, the rest of the world -- I couldn't give you that indication. I don't know the answer to that. But it clearly was produced in Bahrain. If you produce a product based in Bahrain, and it was sold in Bahrain, therefore it was not sold in the United States, it would have had a different tax consequence. That part's correct.
Q So there's a tax benefit to setting up a subsidiary in the Cayman Islands.
MR. FLEISCHER: Well, in this specific example, no oil was produced, so I think it's a moot question, we won't know.
Q Going back to Harken, you say you are not sure whether there were tax benefits to this offshore operation, but it's moot because there were no profits. But the question goes to intent. Do we know what the intent of the directors was and what the President's position, as a board member, George Bush's position was then?
MR. FLEISCHER: Well, again, the President, as I indicated, he opposed the original decision to begin this operation in Bahrain. But I do not have information about any projections about how much of the oil they generated -- they thought might be able to generate would have been for sale in Bahrain or for sale in the United States. I do not have that.
Q Can you help us with the Harken people on this? We've asked this question before. On this particular instance, the President himself said in the Cabinet Room this morning you'd provide more to us. Can you help us on this?
MR. FLEISCHER: Yes, I've given you everything I've got now. We'll continue to try to ascertain any other questions that you've got about it. We'll be more than happy to try to find out. We'll talk to the Harken people or others and try to get it for you. But the point remains the same about the tax treatment for anything sold in the United States. And this is an American company we're talking about.
Q Ari, the Senate Majority Leader said today, relating to Harken, called again for the administration to lay the record straight to "ask the SEC to open its records to let the American people know exactly what happened relating to Harken," that the President's credibility on the corporate accounting responsibility issue is at stake. Why not, if the President said today, we'll try to answer all your questions relating to Harken, why not ask the SEC to release them?
MR. FLEISCHER: Well, actually I don't know that there's any connection between a subsidiary operation. And anything the SEC has looked at, as you know, the SEC was involved in something totally separate from this. So it's really two different issues.
Q But more generally, this goes back to the question since the President held that first news conference about Harken. Why not ask the SEC --
MR. FLEISCHER: More generally, there's nothing different.
As most of you know, companies,
such as Harken Energy, that set up subsidiaries in offshore
tax havens like the Cayman Islands,
do not do it to avoid paying taxes.
Thank you, goodnight, and God bless America.
