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Enron allies helped stave off tax haven crackdown
By SYDNEY P. FREEDBERG For several years, allies of Enron Corp. helped orchestrate a campaign that eventually crippled an international crackdown on offshore tax havens. That helped the giant energy company hide money in a maze of subsidiaries in tax-lax countries before it imploded last month, leaving thousands of employees with little or no retirement pensions, according to the watchdog group Public Citizen. When the Bush administration took office last January, it stalled a years-long, multination campaign to clamp down on countries whose laws allow wealthy individuals and corporations to hide their assets and evade billions of dollars in income taxes. It would be wrong for the United States to interfere with the tax policies of other sovereign nations, Bush officials declared. The administration's position echoed one long advanced by allies of Enron, which in recent years has spent heavily to support the people and institutions that share its agenda: It contributed to the political war chests of 33 members of Congress -- especially several Texas lawmakers -- who urged the Bush administration to dismiss demands for stricter enforcement of money-laundering laws. It helped finance the work of free-market economists such as Lawrence Lindsey, who spoke out against a growing worldwide campaign to rein in international tax havens. Lindsey, who once earned $50,000 as an Enron consultant, is now a White House domestic adviser. It donated to a network of nonprofit groups that united to marshal opposition to the tax-haven proposal and preserve the status quo. Enron also has long been a financial supporter of President Bush. According to the Center for Responsive Politics, Bush has received $736,800 in political contributions from the Houston-based company since 1993. Andrew Quinlan, a lobbyist who helped lead the opposition to efforts to crack down on offshore tax havens, scoffs at the notion that Enron played a financial role. "I wish I would have received money from Enron before they went broke," he said. Administration officials and members of Congress also have said that Enron's political largesse played no role in policy decisions. There can be little doubt, however, that the U.S. reversal on offshore tax havens has helped Enron. Of the company's more than 2,800 subsidiaries, Public Citizen said 874 were in countries considered tax havens, making it difficult to pierce the secrecy of the company's bank accounts. "Having access to this number of unregulated bank accounts provides Enron with potentially thousands of phantom accounts to hide money from U.S. tax officials, California energy crisis investigators or creditors during Enron's bankruptcy filing," says Public Citizen, a consumer lobbying group created by Ralph Nader in 1971. Enron paid no U.S. income taxes in four of five years through 2000 and was eligible for close to $400-million in tax refunds in that time, according to Citizens for Tax Justice, a labor-backed tax research group. It is not unusual for big corporations to seek tax advantages, and Robert Bennett, Enron's lawyer, has said the Houston company has done nothing wrong. Its lobbying efforts, Bennett said, were no different than those of any large firm. According to congressional testimony, the United States loses an estimated $70-billion in tax revenue each year because of assets concealed in offshore accounts. Before Bush took office, the U.S. government had for years supported international efforts to stamp out use of those accounts to evade taxes. The crackdown was led by the Organization of Economic Cooperation and Development, a 30-nation consortium that includes the United States. In 1998, the organization, based in Paris, declared war on bank secrecy that allows rich foreigners to hide their assets. It decried "harmful tax practices" that help tax cheaters and called on countries to clean up their laws to make it easier for police to follow dirty-money trails. The Clinton administration strongly supported the initiative, especially after the FBI tied fugitive Saudi millionaire Osama bin Laden to terrorist attacks on two U.S. embassies in Africa in 1998. The administration also proposed antilaundering legislation, but it quickly ran into trouble on Capitol Hill. Major banks, notably those in Texas, objected to the idea of demanding more information from their depositors. Meantime, the OECD initiative faced stiff opposition from House Majority Leader Dick Armey, who said bureaucrats in Paris were trying to punish small countries with low taxes and dictate U.S. tax policy. He portrayed the Clinton administration's support of OECD as an effort to quash global competition and create standardized -- and higher -- tax rates around the world. "A global network of tax police," Armey called it. Armey, who has received $5,550 in Enron contributions while in office, got help from fellow Texan Phil Gramm, then chairman of the Senate Banking Committee and leading critic of legislation designed to cut down on tax havens. At the time, Gramm's wife, Wendy Gramm, was serving on the Enron board and, as a member of its audit committee, presumably knew about Enron's finances and its web of offshore subsidiaries. Wendy Gramm didn't return calls from the St. Petersburg Times. Larry Neal, the senator's spokesman, said Friday that Gramm opposed one of the bills on "narrow grounds" and never had a conversation "with anyone regarding Enron's views" on the measure. Gramm has received $97,350 in Enron campaign contributions while in Congress, second only to Sen. Kay Bailey Hutchison, R-Texas, who got $99,500. Another critic was Lawrence Lindsey, once a paid Enron consultant. Before joining the Bush administration, Lindsey did consulting work for dozens of companies, many of them foreign banks. He served on Enron's advisory board and received a salary at the American Enterprise Institute as a resident scholar from 1997 to the start of his job in the White House. In a 1999 article in the Financial Times, Lindsey said the "current money-laundering enforcement practices are the kind of blanket search that the writers of the Constitution sought to prohibit." A White House spokeswoman said Friday that Lindsey met with people on both sides of the OECD initiative, but he never talked to Enron's chairman Kenneth Lay or any Enron representative about it. "The U.S. believed the OECD regulations would be harmful to the U.S. and the developing countries in the Western Hemisphere, so the secretary of treasury worked with the OECD on the compromise," she said. Despite opposition, the OECD continued its crusade, issuing a blacklist of 35 nations that allegedly fostered tax evasion and money laundering. It said the countries would face sanctions if they didn't clean up their laws. Armey called on Clinton's treasury secretary, Lawrence Summers, to withdraw U.S. support for the OECD initiative, but Summers did not budge. Buoyed by support from Armey, OECD opponents united under a nonprofit group, the Center for Freedom and Prosperity. Its president was Quinlan, a former GOP congressional aide who once lobbied for the Swiss Investors Protection Association, based in Geneva. Quinlan won't say who the center's financial backers are, but he found a friend in Armey, who praised the center for its work. Quinlan found allies at other Enron-supported think tanks and nonprofit groups. Among them: the American Enterprise Institute, which received donations it won't discuss from Enron; the Institute for Policy Innovation, which Armey founded; the American Council for Capital Formation, where Lay had a seat on the board of directors; and Citizens for a Sound Economy, which got a $20,000 contribution from Enron, according to Public Citizen. In January 2001, the OECD opponents had a sympathetic ear in the White House. Like Lay and Lindsey, the new Treasury secretary, Paul O'Neill, had a home at the American Enterprise Institute, serving as a trustee from 1993 to 2000. Lynne Cheney, wife of Vice President Dick Cheney, was a senior fellow at the same think tank. Asked Friday whether O'Neill had ever spoken to Lay or Lindsey about the antitax haven initiatives, a Treasury spokeswoman replied: "There is no connection between AEI and OECD. I'm not going on a fishing expedition." O'Neill promptly ordered a review of all the Clinton era antilaundering and antitax haven policies. According to published reports, Armey discussed the OECD initiative with Lindsey and O'Neill deputy Mark Weinberger, the assistant treasury secretary for tax policy. Letters came in to O'Neill's office from 72 members of Congress, all urging him to scuttle the antitax haven initiative. Of those lawmakers, 33 had received contributions from Enron. And not all of them were Republicans. Many members of the Black Caucus, including Rep. Sheila Jackson-Lee, D-Texas, questioned whether OECD was picking on poor Caribbean nations. Jackson-Lee has received $38,000 in contributions from Enron while in Congress, more than all but one House member. The New York Times reported that Lindsey played a central role in Washington's opposition to the OECD initiative. Lindsey has said, however, that he wasn't involved in the Treasury Department's review. Over the objections of career IRS officials, O'Neill announced last April that decades of efforts to catch tax criminals had not worked. The OECD initiative was too broad, he said, "not in line with this administration's priorities. "The United States does not support efforts to dictate to any country what its own tax rates or tax system should be," O'Neill said. The OECD crackdown stalled. Under U.S. pressure, the group was forced to delay any sanctions against blacklisted tax-haven countries until at least April 2003. The new policy alarmed some lawmakers, government watchdogs and former IRS commissioners. Sen. John Kerry, D-Mass., an expert on money laundering, called it a "major step backwards in the effort to reduce tax evasion." In July, O'Neill tried to soften his position, saying he was still committed to pursuing tax cheats but was refocusing efforts away from eliminating tax competition and toward better information exchange between countries. Allies of Enron saw it was too early to celebrate victory. They joined a new task force, called the Task Force on Information Exchange and Privacy, contending that OECD would now try to get financial services companies to spy on their customers to help track down additional revenue. Then came Sept. 11. The administration essentially did an about-face. Since then, it has backed congressional efforts to strength antilaundering laws. The Treasury Department has signed information-sharing agreements with the Cayman Islands and Antigua and Barbuda, and O'Neill promises to sign more. Enron's allies vow to press on. - Researcher Kitty Bennett contributed to this report, which was supplemented by Times wires.
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