Leading US investment banks, accountants and lawyers helped Enron avoid hundreds of millions of dollars in taxes using complex structured finance vehicles that baffled the tax authorities, an official report has found.
The tax shelters Enron used with names such as "Show Me The Money!" and "Renegade" had little or no economic purpose and were in many cases too complex for the Internal Revenue Service to understand, according to the report by the congressional joint committee on taxation. The report will provide more ammunition for those seeking a crackdown on the tax shelters and financial engineering adopted by many US companies during the bull market.
Despite reporting billions of dollars in profits between 1996 and 1999, the Houston-based energy company paid no income tax during those years. While boasting of fat profits in reports to investors, it claimed billions of dollars in losses in reports prepared for tax purposes.
The schemes were arranged by a group of "incestuous" advisers, who often served on both sides of a transaction, and were paid a total of $88 million (€81.22 million) in fees between 1995 and the bankruptcy filing in 2001, the report said. The advisers included accountants Arthur Andersen and Deloitte & Touche, the law firms of Vinson & Elkins and Akin, Gump, Strauss, Hauer & Feld, and Shearman & Sterling, and investment bankers Deutsche Bank, Bankers Trust and Chase Manhattan.
Mr Chuck Grassley, chairman of the Senate finance committee, called the report "disturbing" and pledged to bring forward new legislation to shut down similar schemes. Mr Max Baucus, the senior Democrat serving on the joint committee, suggested that reforms which were approved by the committee last week to curb tax shelters would not have been sufficient in the case of Enron.
Transactions devised by Enron and its advisers with little or no business purpose helped the company report $2 billion in "artificial" income from 1995 until 2001.
"Enron's behaviour illustrates that a motivated corporation can manipulate highly technical provisions of the law to achieve significant unintended benefits," the joint committee said, noting that Enron was able to use the tax code to produce results "contrary to its spirit".
The committee proposed a series of reforms to close loopholes and rein in tax advisers and investment bankers who have taken advantage of the current system. It warned that penalties would need to be stiffened in order to dissuade companies from abusing tax rules.
The 2,700-page report also detailed the lavish executive compensation at Enron, where the top 200 executives were paid more than $1 million per year in 2000. - (Financial Times Service)
