Bush, Cheney face questions on tax havens

US President Bush and Vice-President Dick Cheney are facing embarrassing questions about off-shore affiliates in popular tax havens set up by the corporations they were leading before taking public office.

The White House has confirmed that Harken Energy, a Texas oil company where Mr Bush was a director from 1986 to 1993, set up a subsidiary in the Cayman Islands in 1989.

Halliburton, a Texas energy services firm run by Mr Cheney until 2000, saw an increase from nine to 42 in the number of offshore units, according to Citizen Works, an anti-corporate fraud group.

The Washington Post identified 20 subsidiaries in the Cayman Islands set up when Mr Cheney was chief executive from 1995 to 2000.

Democrats said the offshore operations raised questions about the sincerity of the White House's crackdown on corporate abuses.

Both Democratic and Republican members of Congress have been discussing measures to discourage US companies from setting up shell headquarters in tax havens such as the Cayman islands.

Mr Bush said on Wednesday that he was troubled by the creation of offshore affiliates by US companies to avoid paying taxes.

"I think we ought to look at people who are trying to avoid US taxes as a problem," he said. "I think American companies ought to pay taxes here and be good citizens."

White House press secretary Mr Ari Fleischer said the arrangement to set up Harken Bahrain Oil Company in the Cayman Islands was not intended to avoid US taxes. The Middle East oil venture had been opposed by Mr Bush and no oil had been struck or sold.

The offshore affiliate insulated Harken from liabilities involving operations located in Bahrain, Mr Fleischer said. If they had produced any oil in Bahrain and sold it in the United States, it would have been taxable in the US.

He conceded, however, that oil sold elsewhere would have been exempt from US taxes.

Typically US entities in the Cayman islands allow companies to defer paying their US taxes while profits are kept overseas.

Senate majority leader Mr Tom Daschle condemned the Harken arrangement. "If it is true, I think it gets harder and harder to take his [Mr Bush's] position on corporate accountability seriously," he said.

Senator Daschle repeated his call to Mr Bush to allow the Securities and Exchange Commission (SEC) to release its file on an insider-trading investigation involving a large sale of Harken stock by Mr Bush in 1990 just before it fell sharply in value.

Congressman Mr John Conyers, the top-ranking Democrat on the House Judiciary Committee, wrote to the White House asking for the minutes of the Harken board meeting in which the Cayman deal was discussed.

SEC officials decided 12 years ago that there was no case against Mr Bush, although he broke SEC rules in not reporting his stock sales for several months. At the time, Mr Bush's father was president and the head of the SEC was a presidential nominee.

Halliburton spokeswoman Ms Wendy Hall said the purpose of the Halliburton offshore affiliates was not to save money on taxes. "Our non-US subsidiaries were formed to manage business operations outside the US and for no other reason," she said.

The SEC is investigating accounting changes made by Halliburton under Mr Cheney that resulted in uncollected debts in cost over-runs being counted as revenue.

Mr Cheney is one of a number of top executives in the US whose corporate compensation is the subject of intense scrutiny as public sentiment grows against executives who enriched themselves at the expense of shareholders.

According to his tax return for 2000, the Vice-President had an adjusted gross income of $36 million (€36.6 million). This included a cash bonus of $1.5 million in January 2001, based on performance figures that critics now say were manipulated to show positive revenue flows.