The Malefactors of Great Wealth
The State of the Union is fairly surreal. We won the war against Afghanistan, but we’re still at war with Al Qaeda, so we have to go attack North Korea.
The big paper-shredders at Enron are finally coming to a halt, so we should go ahead and pass huge corporate tax cuts to help all the other companies that use aggressive accounting practices and need the dough. They especially need the rebates on the taxes they didn’t pay. We’re a better people than we were on September 10, so let’s all donate 4,000 hours to the country, except for those who are too busy stashing their loot in offshore banks so they won’t have to pay taxes.
To further this noble scheme, the taxpayers will pony up to fund volunteers with religious groups. Does this mean Mormon missionaries will get paid to knock on our doors and persuade us that Joseph Smith and Brigham Young are the light and the way?
I’m clearly confused, but I think some of my colleagues are, too. During the run-up to the State of the Union speech, I heard apparently sane commentators state that since George W. Bush is reading a biography of Teddy Roosevelt, he would speak out against “the malefactors of great Wealth” and possibly even endorse campaign finance reform.
I may be confused by Bush, but these folks have absolutely no idea who he is. Let’s try this again, team. George W. Bush sides with the malefactors of great wealth not because he is a tool of the rich or because Enron bought him with campaign contributions–that’s who he is, that’s what he really believes, that’s his life experience.
Here’s one example from his oilfield career. When Bush was in the oil business, his failing company, Spectrum 7, was bought by Harken Energy. Bush and his two partners got $2 million in stock in exchange for a company that had lost $400,000 in the six months prior to the sale. Bush himself got stock worth about $500,000 and an annual consulting fee of $120,000, later reduced to $50,000.
In June 1990, Bush sold two-thirds of the Harken stock he had acquired in the Spectrum 7 deal at $4 a share–$318,430 more than it was worth when he got it. A month before Bush sold his stock, the Harken board appointed Bush and another company director, E. Stuart Watson, to a “fairness committee” to determine how restructuring would affect ordinary stockholders.
Smith, Barney, Harris, Upham & Co., the financial consultants hired by Harken, told Bush and Watson only drastic action could save the company. So Bush sold his stock before the news became public. According to U.S. News & World Report, there was “substantial evidence to suggest that Bush knew Harken was in dire straits.” Insiders liquidating large blocks of stock are required to notify the Securities and Exchange Commission immediately. Bush reported the sale eight months after the federal deadline. Although the SEC does prosecute flagrant violators of insider-reporting rules, according to The Wall Street Journal, first-time violators usually get only a warning letter.
This not-so-ancient history may not strike you as relevant, so let’s move on to a current policy conflict. The Bush administration’s policy on international money-laundering changed after September 11. Bill Clinton, you may recall, was leading the charge by developed countries to go after offshore banks used by terrorists, drug dealers, tax-dodgers, and other trash. Bush had called off that effort, but it gained new urgency after the attacks, and part of last fall’s anti-terrorism law contained new provisions against international money-laundering.
The Senate Banking Committee recently held a hearing on how the new law is working. Sen. Paul Sarbanes of Maryland, the committee chair, criticized two new regulations concerning “shell banks”–front operations used by people hiding their wealth. Under the anti-terrorism law, American financial institutions are not permitted to have correspondent accounts–that is, deposit accounts that banks have in other banks, with shell banks. According to The New York Times, Sarbanes said the new regulation lets American institutions off the hook if their foreign customers certified they were not fronting for shell banks. Another provision permits correspondent accounts from shell banks if a real bank owns 25 percent of the shell bank’s shares. Sarbanes said it was “a broad loophole,” inviting trouble.
Another way to launder money is through International Business Companies, or IBCs–shell companies not required to file any public notice of who their officers and directors are. There’s no need to reveal the identity of their shareholders; no need to file any financial statements or keep any accounts. No income, capital gains, or inheritance taxes. One pamphlet touting a Bahamian IBC closes with: “‘Pinch me! I’m dreaming,’ you may be saying.”
Indeed you may.
Molly Ivins is a nationally syndicated columnist. Her book with Louis Dubose, Shrub: The Short But Happy Political Life of George W. Bush, is out in paperback.