The Komisar Scoop Reports & Analysis by Investigative Journalist Lucy Komisar

Wednesday, January 23, 2002

How Enron used the offshore system to hide millions

Filed under: offshore,Scoops — Tags: — Lucy Komisar @ 12:05 am

By Lucy Komisar
San Diego Union, Jan 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 services 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 corporate 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 secretly 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” looted 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 billion. 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 shareholders 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 juggle 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 verify 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’être 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 developing 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.

Friday, January 18, 2002

Enron, Like Al Qaeda, Hid Money Offshore

Filed under: offshore,Scoops — Tags: , — Lucy Komisar @ 11:58 pm

By Lucy Komisar
Pacific News Service, Jan 18, 2002

How did Enron executives cause the world’s biggest bankruptcy while making off with millions? By using the same secret money system used by terrorists and financial swindlers — an offshore financial system that U.S. officials must rein in.

NEW YORK–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 ownership of companies and bank accounts secret, even from law enforcement.

To uncover the al Qaeda money trail, U.S. investigators had to use muscle. When a Nassau bank refused to open records, the U.S. had it cut off from the world’s wire transfer systems. The bank changed its mind in two hours.

Now, with Enron, U.S. investigators and the lawyers suing the firm’s executives are turning “offshore” again. Before they finish, their revelations should make lawmakers and the public question the continued existence of the world’s financial services system for criminals.

We know a lot about how Osama bin Laden used the system. Here 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 the company’s 3,000 corporate subsidiaries and partnerships. A fourth of them were registered in Grand Cayman or Turks and Caicos, two notorious offshore centers.

Why put company ownership records in secrecy jurisdictions? So that regulatory authorities, investment analysts and stockholders won’t know about self-dealing or other improper activities. If authorities don’t know who the owners are, they can’t know if Enron managers or associates secretly own a partnership. They can’t check the books to see if the offshore company is dealing with another insider-owned company that is siphoning off its wealth. That’s how Russian oligarchs looted their country.

The offshore system was central to Enron’s collapse. Frank Karam, an attorney at Milberg Weiss Bershad Hynes and Lerach who is working on a suit against top Enron executives, explained that Enron used offshore partnerships “to borrow at least $10 billion from banks. Enron guaranteed these loans with its own stock. They traded with themselves and reported the money as income — as revenue and profit.”

Two offshore partnerships were set up in 1999 simply to move debt off Enron’s balance sheet and hide losses, Karam said. And Enron moved its “profits” to offshore subsidiaries to avoid paying U.S. taxes in four of the last five years.

Enron officials also used the offshore system to hide their own exorbitant pay. “We hear of middle-level executives making $10 or $20 million,” Karam said. “If shareholders knew this…”

Records of Arthur Anderson’s contribution to this offshore system were very likely in the files the accounting firm shredded. “Aggressive accounting” is a common euphemism for using offshore companies to juggle the books and evade taxes. Accounting firms get consulting fees to set up such systems and then “audit” them.

The Clinton administration was working with European allies to rein in the offshore system, but was blocked in the Senate by Republican Phil Gramm, whose wife, Wendy, is an Enron director, and by Republican House leader Dick Armey.

At first, the Bush administration also fought reforms. Treasury Secretary Paul O’Neill weakened an Organization for Economic Cooperation and Development (OECD) strategy against tax havens. But Sept. 11 compelled the Washington to change its tune somewhat. Legislation adopted in October, for example, 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 verify the identities of customers.

But U.S. banks lobbied successfully against requiring additional “due diligence” rules for American banks dealing with offshore banks.

It’s 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 developing proposals for dealing with shell companies. Washington 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 who their owners were and to keep their books where they operated and where they could be examined. Imagine if U.S. law-enforcers 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.

Enron’s Offshore Game Bares Sinister System

Filed under: offshore,Scoops — Tags: , — Lucy Komisar @ 12:08 am

By Lucy Komisar
New York Daily News, Jan 18, 2002

Top executives of Enron caused the world’s biggest bankruptcy while making off with millions of dollars by using the same financial tools as Osama Bin Laden.

The Bush administration knew right where to look when it wanted to shut down Bin Laden’s financial network — offshore secrecy havens. The system moves money for people with something to hide. Sometimes they are terrorists. Sometimes they are financial swindlers.

U.S. investigators had to use muscle to get the Bin Laden information. When a Bahamas bank refused to open its records, the U.S. had it cut off from the world’s wire transfer systems and the bank changed its mind within hours. Offshore revelations on Enron should make the public and policymakers question the continued existence of the world’s financial services system for criminals.

Andrew Fastow, Enron’s chief financial officer until October, was known as a master of international offshore banking laws. Of Enron’s more than 3,000 corporate subsidiaries and partnerships, a fourth of them were registered in Grand Cayman or Turks and Caicos, two notorious offshore centers that would have kept regulatory authorities, investment analysts and stockholders from finding out whether self-dealing or other improper activities were going on.

Milberg Weiss Bershad Hynes & Lerach lawyer Frank Karam, who is working on a suit against top Enron executives, explained that Enron used offshore partnerships “to borrow at least $10 billion from banks. Enron guaranteed these loans with its own stock. They traded with themselves and reported the money as income — as revenue and profit.”

He said two offshore partnerships were set up in 1999 just to move debt off Enron’s balance sheet and hide losses. And, according to a front page article in yesterday’s New York Times, Enron moved its “profits” to offshore subsidiaries, avoiding paying U.S. taxes in four of the last five years. By using the offshore system, the exorbitant pay of Enron officials also was hidden.

Karam said, “We hear of middle-level executives making $10 [million] or $20 million. If shareholders knew this. ..”

Records of Arthur Anderson’s contribution to this offshore system are very likely in the files shredded by the accounting firm. “Aggressive accounting” is a euphemism for using offshore companies to juggle books and evade taxes. The firms get consulting fees to set up the systems and then “audit” them.

Sept. 11 compelled the Bush administration to support some reforms. A Clinton administration push to rein in the offshore system had been blocked in the Senate by Republican Phil Gramm, whose wife, Wendy, is an Enron director, and by Republican House leader Dick Armey. And Treasury Secretary Paul O’Neill had weakened an Organization for Economic Cooperation and Development strategy against tax havens. But in October, legislation was adopted banning American banks from opening accounts for shell banks offshore with no physical presence and thus no clear purpose but money-laundering.

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 organization is developing proposals for dealing with shell companies. The U.S. should support an agreement to end recognition for companies registered in secrecy jurisdictions where they do not do business.

Imagine if Enron subsidiaries had been forced to reveal their owners and keep their books where they operated and where they could be examined. Imagine if law enforcers could demand to see the bank accounts of Enron’s top officials and its “partnerships” instead of having to track them through the murky swamp of offshore secrecy.

U.S. lawmakers and officials should work to plug up the offshore financial black hole.

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