-Caveat Lector-
From
http://www.truthout.com/01.29E.Enron.Offshore.htm
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Jan. 25, 2002
How Enron Used the Offshore System to Hide Millions
By Lucy Komisar
San Diego Union-Tribune
January 23, 2002
How did top executives of Enron do it? How did they cause the world's
biggest bankruptcy while making off with millions of dollars?
They used the same financial tools as Osama bin Laden.
To attack the Osama bin Laden financial network, the Bush
administration knew right where to look in "offshore" secrecy havens,
including the Bahamas, Switzerland, Luxembourg, Dubai and Panama.
Investigators know that the world's bank and corporate secrecy system
was set up to move money for people with something to hide. Sometimes
they are terrorists. Sometimes they are financial swindlers. They are
welcomed in
"offshore" centers that promise to keep their ownership of companies and bank
accounts secret, even from law enforcement.
U.S. investigators had to use muscle. When a Nassau bank refused to open records, the
United States had it cut off from the world's wire transfer systems. The bank changed
its mind in two hours.
The U.S. investigators and the lawyers suing Enron's executives are also turning
"offshore." Before they finish, their revelations should make the public and
policy-makers question the existence of the world's financial s
ervices system for criminals.
We know a lot about how Osama bin Laden used the system. This is how Enron used it.
Andrew Fastow, the company's chief financial officer until October 2001, was known as
a master of international offshore banking laws. The key to the Enron swindle was its
offshore partnerships. Enron had over 3,000 corpo
rate subsidiaries and partnerships, and a fourth of them were registered in Grand
Cayman or Turks and Caicos, two notorious offshore centers.
What's the purpose of putting company ownership records in secrecy jurisdictions?
It's so regulatory authorities, investment analysts and stockholders can't know if
there's self-dealing or other improper activities going on. If they don't know who the
owners are, they can't know if a partnership is sec
retly owned by Enron managers or associates. They can't check the books to see if the
offshore company is dealing with another insider- owned company which is siphoning off
its wealth. That's how Russian "oligarchs" loote
d their country.
The offshore system was central to Enron's collapse. A lawyer working on a suit
against the top executives explained, "They set up offshore partnerships and used them
to borrow billions from banks, $20 billion or $30 bill
ion. Enron guaranteed these loans with its own stock. They traded with themselves and
reported the money from the banks as income as revenue and profit." Two offshore
partnerships were set up in 1999 just to move debt off
Enron's balance sheet and hide losses. Enron officials also used the offshore system
to hide their own exorbitant pay. The lawyer said, "We hear of middle-level executives
making $10 million or $20 million. If shareholde
rs knew this . . . "
Records of accounting firm Andersen's contribution to this offshore system are very
likely in the files the accounting firm shredded. Firms talk about "aggressive
accounting," a euphemism for using offshore companies to j
uggle the books and evade taxes. They get consulting fees to set up the systems and
then "audit" them. Enron was not the only satisfied client.
The Clinton administration was working with European allies to rein in the offshore
system, but it was blocked in the Senate by Republican Phil Gramm, whose wife Wendy is
an Enron director, and by Republican House leader
Dick Armey. Bush Treasury Secretary Paul O'Neill weakened a strategy by the
Organization for Cooperation and Development against tax havens. But Sept. 11
compelled the administration to support reforms.
Legislation adopted in October bans American banks from opening accounts for "shell"
banks with no physical presence and thus no clear purpose but money-laundering. It
requires banks, securities and insurance firms to ver
ify the identities of customers. But U.S. banks lobbied successfully against requiring
additional "due diligence" rules for American banks dealing with offshore banks, whose
raison d'�tre everyone also knows.
Now is the time for another step forward. Congress should ban U.S. institutions from
dealing with banks that don't list owners' real names on accounts or cooperate with
international law enforcement. The OECD is developin
g proposals for dealing with "shell" companies. The United States should support an
agreement to end recognition for companies registered in secrecy jurisdictions where
they don't do business.
Imagine if Enron subsidiaries had been forced to reveal their owners and to keep their
books where they operated and where they could be examined. Imagine if U.S. law
enforcement officers could demand to see bank accounts
of Enron "partnerships" and top officials, rather than tracking them through the
murky swamp of offshore secrecy. U.S. lawmakers and officials should work to plug up
the offshore financial black hole.
Komisar is a New York journalist who investigates international crime and corruption
tied to the offshore bank and corporate secrecy system.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without
profit to those who have expressed a prior interest in receiving the included
information for research and educational purposes.)
� : t r u t h o u t 2001
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