Harken Energy Set Up Caymans Subsidiary In '89
The New York Daily News
By Timothy J. Burger
DAILY NEWS WASHINGTON BUREAU
July 31, 2002
Source
WASHINGTON - Harken Energy Corp. set up an offshore subsidiary in the Cayman Islands tax haven while President Bush sat on Harken's board of directors in 1989, the Daily News has learned. The revelation comes as Republican lawmakers are roundly criticizing the practice of U.S. companies setting up offshore subsidiaries, usually to skirt American disclosure laws or corporate income taxes on foreign income.
Even White House spokesman Ari Fleischer condemned the tactic yesterday, saying, "The President is concerned about corporations in America who take advantage, set up operations outside of America, in an effort to lower their taxes."
A spokesman for Bush said the offshore company did not save any taxes because it failed to find oil or make a profit.
Harken registered Harken Bahrain Oil Co. on Sept. 1, 1989, according to Cayman Islands government documents.
It was formed as the Texas-based Harken sought a $25 million contract with the Bahrain government to drill in the waters off the Arab islands.
Harken filings with the Securities and Exchange Commission say the Bahrain contract was run "through its newly-formed, wholly-owned subsidiary, Harken Bahrain Oil Co."
Records show that Harken Bahrain was paid at least $2 million by 1993 for its Bahrain operation, which never did strike oil.
Bush was on Harken's board of directors and a paid consultant from 1986 to 1993.
It is unclear whether Bush had a role in approving the formation of the Caymans subsidiary.
'General practice'
White House communications director Dan Bartlett said, "As a general practice at that time ... international contracts like this one were done through a subsidiary to contain liability. ... In order to save money [on taxes], you would have to make money, and they didn't make any. They found no oil."
Critics said the transaction - which is legal - raises new questions about Harken's governance while Bush was part of its management.
Bush's sale of Harken stock shortly before the price dropped in 1990 was investigated by the SEC. Bush also filed papers on the sale several months later than what was legally required. The SEC concluded there was no evidence of insider trading.
"It is reminiscent of Enron," said Chuck Lewis of the Center for Public Integrity, a Washington-based government watchdog. "Here is a controversial, on-the-edge company investigated by the feds, sham transactions where they have to restate their earnings and - oh, yeah - they have a Caymans account. What's wrong with this picture? ... What else don't we know?"
GOP members of Congress also hammered the tactic of creating subsidiaries in tax havens.
"It's not illegal, but it is immoral," Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said yesterday. "I think it's also a case of patriotism."
Asked what he thought of Bush's involvement in an offshore subsidiary, Grassley said, "I'm not aware of it so I can't comment on it."
Treasury Secretary Paul O'Neill blasted the practice this year.
"When we have a tax code that allows companies to cut their taxes on their U.S. business by nominally moving their headquarters offshore, then we need to do something to fix the tax code," O'Neill said in May.
All contents © 2002 Daily News, L.P.
Mounties stumped in Bre-X scam
"Bre-X, valued at its peak at more than $6 billion on the stock market, became worthless and was pushed into bankruptcy.
"International laws protect witnesses who reside outside of Canada from being compelled to testify," Alberta RCMP assistant commissioner Don McDermid said in a release.
The RCMP announcement came a day after former Bre-X senior vice-president John Felderhof -- believed to be in his Cayman Islands mansion -- was charged with eight counts of violating Ontario securities laws.
But those charges of insider trading and releasing false news are not Criminal Code counts and are not extraditable offences, which means Felderhof can't be forced to return to Canada."
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