Scandal of crashed company's
tax evasion
David Teather in New York
Friday February 14, 2003
The Guardian
guardian.co.uk
Enron, the US energy company that collapsed amid scandal in
late 2001, evaded billions of dollars in tax with the help of "some
of the nation's finest" accountants, investment banks and
lawyers, according to a report published yesterday.
The report delivered at a hearing in Washington found that
Enron, once the seventh largest company in the US, paid no
federal income tax between 1996 and 1999 and only token
amounts in other years. The three volume report was also
critical of deferred compensation plans for executives used
widely to avoid tax. It noted in passing that Enron had paid
$53m (£32m) in previously deferred compensation to top
executives in the weeks before it went bankrupt.
Charles Grassley, chairman of the senate finance committee,
which commissioned the report, expressed outrage. Although
there is no allegation that they stepped outside the law, he said
it called into doubt the ethics of tax advisers and the "desperate"
bankers, accountants and lawyers who worked with Enron.
As well as Enron's former auditor, the defunct Arthur Andersen,
Deloitte & Touche, Chase Manhattan, Bankers Trust and
Deutsche Bank are alleged to have helped structure 12 tax
avoidance schemes identified in the report to save $2bn.
The findings were released ahead of the much anticipated
results of an investigation into Enron's collapse by the court
appointed examiner, Neal Batson, that threatens to implicate
some of the biggest names on Wall Street and in the City.
Mr Batson's report, now running to 2,000 pages, had been
expected to be published today but has now been delayed until
February 28th due to the complexities of the deals described. It
will give a detailed account of Enron's dealings with its advisers
and the delay is to give all parties concerned extra time to trawl
through the exhaustive report before it is made public.
The links between Enron and Barclays bank and law firm
Linklaters are among the relationships expected to come under
scrutiny.
Yesterday's congressional report said Enron had made
"complexity an ally" to hoodwink the internal revenue service in
the US.
According to the report, Enron's tax department was designated
a profit centre, with its own annual revenue targets. One internal
document released by the committee was titled: "Show me the
money."
The committee recommended severe penalties to limit the use
of tax shelters and to close the loopholes used by large
corporations. "Enron places the spotlight again on the general
ineffectiveness of the current law," said the author of the report,
Lindy Paull.
The collapse of Enron and subsequent financial scandals have
already prompted sweeping reform to the accounting profession,
corporate governance and the structure of investment banks.
Mr Grassley said: "The report reads like a conspiracy novel, with
some of the nation's finest banks, accounting firms and
attorneys working together to prop up the biggest corporate
farce of this century."
At the time of its bankruptcy, the firm had 1,300 foreign entities
on its books, some 80% of which were inactive shells. A third of
them were in the Cayman Islands.
Enron collapsed after the company was found to have been
inflating earnings through a string of dubious off balance sheet
deals, destroying billions of dollars of workers and shareholders'
invest ments. Former chief financial officer, Andrew Fastow,
faces 78 counts of fraud, money laundering and other offences.
He has pleaded not guilty.
Mark Palmer, a spokesman for Enron, said: "We have and will
continue to cooperate with investigators into Enron's past but
our focus right now is on the future and maximising the value in
the estate so that we can enhance our creditors resources and
preserve as many jobs as possible." |
