>Published on Thursday, August 1, 2002 in the Baltimore Sun > >Bush-Connected Company Set Up Offshore Subsidiary >Congress continues work to limit such maneuvers for dodging U.S. taxes >by David L. Greene > >WASHINGTON - The White House acknowledged yesterday that while President >Bush was serving on the board of Harken Energy Corp. in 1989, the company >created an offshore subsidiary, which could have helped it avoid paying >U.S. taxes. >The revelation comes as Congress is engaged in debate over how to crack >down on companies that move offices abroad to avoid corporate taxes or to >skirt U.S. regulations. >What Harken did was legal and is common practice for international >corporations, analysts say. And it is not clear whether Bush was involved >in the decision to create the overseas subsidiary. >Still, Democrats were quick to argue that the news could further weaken >the president's credibility as he responds to a series of corporate >scandals that have shaken investors. >The revelation about Harken comes after other occasions on which the >president acknowledged that, while he was an executive in Texas, he or his >company engaged in some of the practices that lawmakers are trying to >eliminate as they seek to curb corporate abuses. >Bush said yesterday, "We ought to look at people who are trying to avoid >U.S. taxes as a problem." >He added, "I think American companies ought to pay taxes here and be good >citizens." >Asked about Harken's subsidiary, Bush said only, "I think there was an >issue over an arrangement with Bahrain, a drilling venture there, which I >opposed, as you may recall, when I was a director of the company." >The White House confirmed that Harken created a subsidiary in 1989 in the >Cayman Islands, which has served as a tax shelter for some U.S. companies. >The subsidiary was set up to help manage a contract Harken had signed with >Bahrain to drill off the coast of that Arab nation. >Lawmakers in both parties have expressed support for various proposals to >limit the ability of companies to shift headquarters abroad to evade taxes. >Their chief concern is a series of cases in which corporations - including >Tyco International and Fruit of the Loom - have moved their nominal >headquarters to Bermuda, the Cayman Islands or other overseas locales. >Though most of their employees stay in the United States, the companies >can avoid U.S. taxes by reincorporating in a tax haven. >The Harken case differs somewhat, analysts say, because the company was >not moving its headquarters; rather, it was opening only a subsidiary >abroad. But analysts said the intent was essentially the same - to avoid >U.S. taxes on foreign income or to sidestep U.S. labor or litigation rules. >Neither Harken nor Bush has been found to have done anything illegal. But >Bush has been put in an awkward position as he has tried to portray >himself as a forceful opponent of questionable corporate practices. >More than a decade ago, for example, he or Harken took part in some of the >actions targeted by the corporate reform bill he signed into law Tuesday. >While he was a director at Harken, the company was accused of overstating >profits and was forced by the Securities and Exchange Commission to revise >its reported profits. >Bush himself was investigated by the SEC about his sale of Harken stock in >1990, two months before Harken reported a bigger-than-expected loss and >its share price tumbled. The SEC chose to take no action against Bush. >Bush also accepted loans from his own company, a step that was severely >restricted in the law signed this week. >Asked about Harken's offshore subsidiary, Senate Majority Leader Tom >Daschle, a South Dakota Democrat, said, "If it is true, I think it gets >harder and harder to take his position on corporate accountability seriously." >"If there is any question about this Cayman matter," Daschle said, "I >think that it's important for them to ensure that people know exactly what >happened." >Bush's spokesman, Ari Fleischer, pointed out that the Harken subsidiary >did not make any money, because the company found no oil off Bahrain. >Fleischer added, "If they had produced any oil in Bahrain and sold it in >the United States, it would have, of course, been taxable in the United >States." >But Jon Kyle Cartwright, an energy analyst at Raymond James, noted that it >would be "extremely unusual to produce oil in Bahrain and bring it to the >U.S. to sell it." >The purpose of an oil company's creation of an offshore subsidiary, >Cartwright said, is to avoid U.S. taxes and U.S. regulations when the >company sells to other nations. >He said it is "very common" for oil companies and other large firms to >establish foreign subsidiaries, especially to compete in international >markets. >Copyright © 2002, The Baltimore Sun
