President Bush said early this month that he is troubled by the creation of
offshore affiliates by U.S. companies to avoid paying taxes, a practice
that lawmakers are trying to restrict.
However, in a recent article by Mike Allen of the Washington Post, Bush's
comments coincided with disclosures that companies connected to Bush and
Vice President Cheney actually created such offshore entities.
The White House confirmed that Harken Energy Corp., a Texas oil company
where Bush was a director from 1986 to 1993, set up a subsidiary in the
Cayman Islands, a popular tax haven, in 1989.
Halliburton Co., a Dallas-based energy services firm, registered at least
20 subsidiaries in the Cayman Islands when Cheney was chief executive from
1995 to 2000, according to Securities and Exchange Commission records. In
both cases, officials denied that the purpose was to evade taxes.
Capitol Hill Democrats, and an increasing number of Republicans, are trying
to prevent companies from setting up a shell headquarters in a tax haven,
while keeping most of their operations and jobs in the United States.
When asked about the issue after a Cabinet meeting, Bush condemned the
practice. "I think we ought to look at people who are trying to avoid U.S.
taxes as a problem," he said. "I think American companies ought to pay
taxes here, and be good citizens."
Administration officials said the Harken arrangement, disclosed by the New
York Daily News, provided no tax advantages. The aides said that, instead,
Harken Bahrain Oil Co. insulated the parent company from liability from an
explosion or other disaster involving a contract with the Bahrain
government. Bush had opposed the deal and Harken never struck oil or made
money, the White House said.
Senate Majority Leader Thomas A. Daschle (D-S.D.) condemned the reported
Harken arrangement. "If it is true, I think it gets harder and harder to
take his position on corporate accountability seriously," he said.
Bush did not go into detail about the subsidiary, but said, "As far as the
Harken issue, we'll try to answer all your questions on that."
Daschle took him up on the offer, repeating his call for Bush to allow the
SEC to release its file on an insider-trading investigation involving a
large sale of Harken stock by Bush in 1990. SEC officials decided there was
no case against Bush. Daschle said the Cayman Islands affiliate was another
reason "why we think that the administration needs to lay the record
straight, needs to allow the SEC to open up its records."
White House communications director Dan Bartlett repeated the
administration's position that all of the relevant documents about the SEC
investigation have been released.
"Senator Daschle's time would be better served by scheduling a vote on
homeland security than wasting it on an irrelevant issue from 13 years
ago," Bartlett said.
The Bush administration has become more critical of corporate expatriates
than it was before bookkeeping scandals pushed corporate-governance issues
to the top of Bush's agenda.
In May, the Treasury Department released a preliminary report on the
reincorporation of U.S. companies in offshore tax havens, such as the
Cayman Islands and Bermuda. Rather than criticize the companies, the report
faulted the complexity of the U.S. corporate tax code.
House Ways and Means Committee Chairman Bill Thomas (R-Calif.) has drafted
legislation that would impose a three-year moratorium on such
reincorporations, declaring that for tax purposes, companies that move
offshore would still be treated as American.
The Senate approved an amendment early this month denying defense contracts
to U.S. companies that incorporate offshore beginning this year. The House
approved a similar measure last week.
Citizen Works, founded by Ralph Nader, released a report yesterday on
Halliburton's use of offshore subsidiaries, citing SEC documents to contend
that the number went from nine to 44 during Cheney's tenure. Halliburton
spokeswoman Wendy Hall said the purpose was not to save money on taxes.
The SEC is investigating accounting changes made by Halliburton under
Cheney that resulted in uncollected debts being counted as revenue.
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