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White House Backed Off Banking Laws
Bush Gave Enron Breathing Room
hile the Bush administration is seemingly open to finding out what happened with Enron, its disclosures are selective, omitting Cheney's energy task force and the role Enron played in framing White House energy policies, which depended largely on the increased production of natural gas at home and abroad. Natural gas is an underlying economic factor in Central Asia, for starters, and U.S. pipelines for the fuel were one of Enron's biggest hard assets.
One unexplored approach to unraveling the Enron scandal may lie in the company's use of offshore tax havens, which have scant banking-disclosure laws. The company had over 2800 subsidiaries, some 800 of which were headquartered in nations officially designated as tax havens, including the Cayman Islands. In its lengthy study of Enron, the watchdog Public Citizen argues that by stashing money in this myriad of subsidiaries, Enron could conceivably hide from a growing list of creditors as well as U.S. tax investigators. Indeed, Enron appears not only to have paid no taxes for four of the past five years, but also may have been eligible for hundreds of millions in refunds.
It's an intriguing story. Under Clinton, the feds made an effort to gain more information about how these tax havens operate by joining with other countries in the Organization for Economic Cooperation and Development (OECD), which wanted to clamp down on lax banking laws. At first, the Clinton Treasury Department just named the offending countries, hoping to embarasss them into changing. After Osama bin Laden's 1998 attack on U.S. embassies in Kenya and Tanzania, there was a new urgency to tracking Al Qaeda's money. Two years later, the U.S. was able to negotiate deals with the Cayman Islands and others to work on tightening their rules. And Clinton threatened economic sanctions if they didn't move.
With Bush, everything changed. Less than a month after his inauguration last year, his Treasury announced the Clinton deals had been placed under review. Last spring the administration told OECD that it wouldn't be going along with the Clinton agreements. Instead, on November 27 of last year, in the midst of the gathering Enron scandal and a few days before the company formally filed for bankruptcy, Treasury Secretary Paul O'Neill said the Cayman Islands had agreed to start cooperating with U.S. investigators in 2004. That might sound tough, but it actually gives Enron and other companies a 25-month breather to clear the decks and find somewhere else to stash their money. Even then, as Manhattan District Attorney Robert M. Morgenthau charged, the Cayman Islands could back out of an agreement with three months' notice and suffer no repercussions.
The question, of course, is whether Bush undertook this change in offshore banking policy with Enron in mind. That could be answered by a congressional investigation, but with Enron at the center of a partisan battle, such a prospect is problematic at best. The situation is clouded futher by Attorney General John Ashcroft having recusing himself, Congress resting in Enron's pocket, and members of the administration suffering stock losses from plummeting Enron stocks. It may take an investigation by a special independent counsel—Whitewater, anyone? Turning the matter over to an outside investigator may be our only hope, but it will cost millions of dollars and, as the Clinton inquiries demonstrated, take forever and ever.
The biggest problem in the Enron scandal is making sense out of a blizzard of statistics used by different sides to back up their arguments. For example, last week, Public Citizen reported that Senator Phil Gramm got more than $260,000 in campaign financing from Enron—information picked up by media, including this column (see "Phil Gramm's Enron Favor,"). When questioned by reporters, the watchdog did a recount and came up with a figure of $98,000. It's important to note that without the work of groups like Public Citizen, few would ever draw the direct, subtle connections between contributions given to politicians and the legislative favors they return. Even as the nation strains to understand this scandal, the top echelon is counting the millions they've made.
-- Cherri (email@example.com), January 24, 2002