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Bush, Cheney under fire over offshore subsidiaries

Reuters July 31, 2002

WASHINGTON (Reuters) -- In a practice now criticized by the White House and Republicans, President 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 Wednesday.

Democrats said revelations of offshore subsidiaries created by Harken Energy Corp. while Bush served as a director and Halliburton Co. 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 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. 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.

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 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.