Enron’s Offshore Game Bares Sinister System

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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