By Lucy Komisar
May 31, 2005
In the space of four or five years, Halliburton, the international oil services and construction conglomerate that is under attack for overcharging and underperforming in Iraq, has gone from reporting 70 or 80 offshore subsidiaries in its annual SEC filing to just two, both in the Cayman Islands. Offshore networks had become a central part of Halliburton’s management and financial strategy. When current United States Vice President Dick Cheney was CEO of Halliburton from 1995 to 2000, the company’s offshore subsidiaries increased from nine to 44. By the year 2001, that had nearly doubled. Now most of them have gone missing!
In its 10-K filing for fiscal 2004, filed with the SEC on March 1, 2005, Halliburton lists only Georgetown Finance Ltd., and Halliburton Energy Cayman Islands Limited, both formed in the Cayman Islands. That compares with 18 offshore subsidiaries in both 2003 and 2002, 84 in 2001 and 77 in 2000. Some analysts have come up with even higher numbers but it depends on whether you consider companies registered in such places as the Netherlands as offshore.
In 2002 the corporate watchdog Citizen Works ranked the company seventh among Fortune 500 companies with the most offshore tax-haven subsidiaries. Halliburton spokeswoman Cathy Gist was uncooperative when I contacted her, refusing to provide addresses and functions for the disappeared subsidiaries or to say what had happened to them.
Nor would she discuss the reasons for the change or tell how the subsidiaries’ functions were now being carried out. She said only: “SEC rules require disclosure of certain subsidiaries and Halliburton is in compliance with this requirement. Halliburton has had an ongoing effort to rationalize its number of subsidiaries.”
Some of the firms had become embarrassments. Halliburton Products and Services, Ltd., of the Cayman Islands, was used to evade the U. S. embargo on U. S. companies doing business with Iran. The connection was exposed in 2001 by New York City Comptroller William Thompson, who is a trustee for state pension funds that own Halliburton shares, and it was reported by CBS’ “Sixty Minutes.”
It turned out that Halliburton Products and Services, Ltd. was just a shell company, operating from a post office box in the Caledonian Bank building, in George Town, Grand Cayman. The real headquarters of the operation were in Halliburton’s own offices in Dubai, which was in turn controlled by its headquarters in Houston.
A federal grand jury in the Southern District of Texas hearing testimony in a criminal investigation by the Justice Department in July 2004 issued a subpoena requesting company documents. The inquiry is still underway.
David Phinney wrote in the internet publication CorpWatch that Halliburton was using a Cayman Islands subsidiary, Service Employees International, Inc., to employ an estimated 70 per cent of its workers from the United States and elsewhere for a major Pentagon contract for military support services. As a result, workers were being denied workmen’s compensation and other U. S. benefits. According to CorpWatch, “Company spokeswoman Cathy Gist offered no comment on this employment practice but said in an e-mail earlier this summer that all Service Employees International, Inc. employees are covered by U.S. workplace rules.”
In fact, under Texas law, employees of “foreign” subsidiaries are not entitled to unemployment benefits. The Texas Workforce Commission ruled against a former Halliburton employee the foreign subsidiary “does not satisfy the definition for an ‘American employer’ under the [Texas] statute.”
And Lewis S. Fleishman, a Houston attorney who represents a worker injured on the job in Iraq, told me: “He can’t get them to pay for medical care, or compensation.”
Other companies had not been targeted publicly. Still, as Halliburton has become the object of government investigations, it might not have wanted its offshore operations to be examined.
A Bermuda auditor who has worked with insurers for several decades and is “averse to tax evasion and business fraud” looked at two Halliburton subsidiaries that had been listed in Bermuda, Property & Casualty Insurance Limited, and Professional Resources Ltd.. He told me that: “Property and Casualty Insurance sounds like a name which would not be allowed by Bermuda regulators as too all-encompassing, so I doubt its existence.
If it does exist, it probably is a captive.” “Professional Resources sounds like a company to employ their overseas workers, rather than have their employees in the country they actually work in all over the world. They would then be contracted out from Bermuda.” That is similar to the function of the Grand Cayman company.
Of course, perhaps the most common use of offshore subsidiaries is to launder profits, conceal activity, and avoid taxes. After Halliburton set up its offshore system under Cheney, Halliburton went from paying $302 million in company taxes in 1998 to receiving an $85 million dollar tax refund in 1999. This was before it took a massive charge against profits for expected liability related to the legal claims by victims of asbestos manufactured by Dresser Industries, which it bought in 1998. It booked its more than $4.0 billion U. S. in losses from 2002 through 2004.
In its latest annual report, Halliburton states: “Our operations in more than 100 countries other than the United States accounted for approximately 78% of our consolidated revenue during 2004, 73% of our consolidated revenue during 2003, and 67% of our consolidated revenue during 2002. Based on the location of services provided and products sold, 26% of our consolidated revenue in 2004 and 15% in 2003 was from Iraq, primarily related to our work for the United States government. Revenue from Iraq represented less than 10% in 2002.”
And: “Total revenue for 2004 includes $8.0 billion, or 39% of consolidated revenue from the United States government, and total revenue for 2003 includes $4.2 billion, or 26% of consolidated revenue from the United States government, which is derived almost entirely from our Government and Infrastructure segment.”
Halliburton, like other multinationals, would have made use of controlled foreign corporations (CFCs) and subsidiaries in tax havens. What is a CFC? If a U.S. company incorporates a subsidiary abroad it is treated as a “foreign citizen” under the U. S. tax code, and the corporate owner does not have to pay U. S. taxes on the subsidiary’s income until it is brought back. It can be kept and reinvested outside the U. S. Companies seldom never bring such profits home.
Citizen Works reported: “Halliburton paid only $15 million of their $80 million in total taxes (or 19 percent) to the U. S. government in 2002. The remaining 81 percent of the company’s taxes went to foreign governments. Although Halliburton is an “American” corporation on paper, it is actually a foreign corporation that has no allegiance to the United States.”
A tax haven firm is almost always a shell company with no employees in its place of incorporation and no function other than to hold assets or pretend to be an operating entity. They are frequently used to evade taxes through transfer pricing and other profit-laundering devices.
At one time, Halliburton had a complex web of offshore companies, including Avalon Financial Services, Ltd., of the Cayman Islands; Halliburton Sakhalin Limited, of Cyprus [Presumably for dealing with the Sakhalin (Russia) oil fields], Halliburton West Africa Ltd., of the Cayman Islands; Halliburton Anstalt, of Liechtenstein [Anstalt means trust or foundation. Was this a charitable enterprise? Not too much oil in Liechtenstein]; Halliburton Offshore Services, Inc., of the Cayman Islands; AOC Services Limited Jersey; Brown & Root (Overseas) Limited, of Jersey; Brown & Root N.A. Limited, of the British Virgin Islands; Brown & Root Servicios Industriales, Inc., of Panama; Dresser AG and Dresser Anstalt, both of Liechtenstein [Dresser got in trouble with asbestos, but it wasn’t in Liechtenstein]; Dresser Investments N.V., of the Netherlands Antilles; Global Drilling Services, Inc., Panama [No oil in Panama, last we heard]; GO Turkey S.A., of Nevis [Turkey & Nevis???? The mind boggles], Halliburton Energy Development (Kazakhstan) Limited, of the Cayman Islands [a long way from Central Asia]; and Grove Foreign Sales Corporation, of the Cayman Islands [useful for transfer pricing, perhaps].
Now they are gone. Could Halliburton so quickly shift the functions that its offshore subsidiaries performed, which would, in itself, be compelling evidence that they existed simply as pieces of paper in a company manager’s filing cabinet? Or is it still using them, but not reporting them?
One way Halliburton could legally keep using the subsidiaries without reporting them is to sell shares in them to a third party so its percentage is below the level required for reporting. Or the functions could be transferred to firms such as those in the Netherlands – a jurisdiction which has some tax haven attributes – but which perform as operating entities and are, therefore, not considered tax haven companies.
Staff people for Rep. Henry Waxman, who has led Congressional inquiries of Halliburton’s activities, and New York Comptroller Thompson, a trustee for pension funds with Halliburton shares, expressed interest in these findings and promised to investigate further.