In '89, Bush opposed Harken overseas subsidiary
CNN Washington Bureau
WASHINGTON (CNN) -- President Bush opposed the establishment of an overseas subsidiary in the Cayman Islands by Harken Energy Corp. in 1989 when he was on the board of directors, the White House said Wednesday.
Many companies use the Cayman Islands -- as well as other nations with favorable laws -- to lower tax obligations.
The president's practices as a board director and paid consultant for Harken from 1986 to 1993 have been under scrutiny in light of Enron and other recent corporate accounting scandals.
Bush's sale of Harken stock shortly before the price dropped in 1990 was investigated by the Securities and Exchange Commission several years ago. Bush was also several months late in filing papers on the sale than what was legally required. The SEC concluded there was no evidence of insider trading.
White House spokesman Ari Fleischer said that the Texas-based Harken set up the Cayman Islands subsidiary as part of a deal with the Bahrain government to drill in the waters off the Arab islands.
Under the arrangement, any oil that was produced in Bahrain and sold in the United States would have been taxable in the United States.
But tax experts say if that oil had been sold anywhere else, including in Bahrain, its profits would have been tax-exempt.
When Fleischer was asked about it, he said that the oil produced and sold in Bahrain would have had "a different tax consequence."
When pressed as to whether there was a tax benefit to Harken in the setup of the overseas subsidiary, he said: "In this specific example, no oil was produced, so I think it's a moot question."
President Bush, when asked Wednesday about the Cayman Islands subsidiary, said: "I think there was an issue over an arrangement with Bahrain, a drilling venture there, which I opposed, as you may recall, when I was a director of the company."
Fleischer said the president's opposition as a Harken director is a matter of public record.
The revelation comes as Republican lawmakers have been roundly criticizing the practice of U.S. companies setting up offshore subsidiaries, usually to skirt American disclosure laws or corporate income taxes on foreign income. The tactic has been condemned by the White House, the treasury secretary and leaders of the Republican Party for being an unethical way for corporations in the United States to lower their taxes.
When Bush was asked whether the practice should be outlawed, he said, "I think we ought to look at people who are trying to avoid U.S. taxes as a problem. I think American companies ought to pay taxes here, and be a part -- good citizens. But as far as the Harken issue, we'll try to answer all your questions on that."
Critics said the establishment of the subsidiary, which is legal, raises new questions about Bush's own business practices.
Senate Majority leader Tom Daschle, D-South Dakota, on Wednesday called on Bush again to ask the SEC to release all documents related to his Harken business dealings.
"We think that the administration needs to lay the record straight, needs to allow the SEC to open up its records," Daschle said. "And if there is any question about this Cayman matter, I think that it's important for them to ensure that people know exactly what happened."
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