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DukeEmployees.com - Duke Energy Employee Advocate

Washington - Page 17


“Some accountants, too, had admitted they felt pressure to match tax-avoidance
strategies of competitors, even if they were shams.”  -    St. Petersburg Times


Harvey Padewer at Secret Energy Meetings

New York Times – by D. Van Natta, N. Banerjee – April 1, 2002

This article also appeared in The Charlotte Observer on March 27, where Ted Reed made contributions.

Administration official met with 18 who gave $16.6 million to GOP

WASHINGTON, March 26 — As he helped the Bush administration write its national energy report last year, Energy Secretary Spencer Abraham heard from more than 100 energy industry executives, trade association leaders and lobbyists, according to documents released by the Energy Department.

Mr. Abraham did not meet with any representatives of environmental organizations or consumer groups, the documents show.

In a press release on Monday night, the Energy Department summarized the secretary's calendar by saying that Mr. Abraham met with 36 industry representatives on task force matters. Most news organizations reported that figure today.

But Mr. Abraham actually met with 109 representatives of energy industry companies and trade associations, according to a comprehensive review of his daily calendar from late January 2001 to May 17, 2001, the day the White House released its national energy report. Many of the executives were leaders of corporations that were among the most generous financial supporters of President Bush's presidential campaign and the Republican Party.

Among the individuals and groups that met with Mr. Abraham, 18 contributed a total of $16.6 million to the Republican Party since 1999, nearly three times what they gave to the Democratic Party, according to an analysis of data compiled by the Center for Responsive Politics.

Among the executives who met with Abraham were Harvey Padewer, group president of energy services for Charlotte’s Duke Energy Corp., who had a one-on-one meeting with the secretary on March 20, 2001, according to Duke spokesman Randy Wheeless.

“Obviously they were talking about energy,” Wheeless said. “Our customers and our shareholders should expect that we would be offering our expertise about energy policy. That’s our business.”

Spokesmen for Progress Energy Inc. of Raleigh and Scana Corp. of Columbia both said nobody from their companies met with anyone in the administration as part of its energy review.

Jill Schroeder, spokeswoman for the Energy Department, said the department came up with its figure of 36 industry representatives meeting with Mr. Abraham based on executives who had asked to discuss the work of the task force with Mr. Abraham, who was an influential task force member. But many of the other meetings not counted by the Energy Department also dealt with the executives' interest in topics covered by the national energy policy.

"He's the energy secretary, he meets with these folks about energy issues," Ms. Schroeder said. "It's his job."

Energy Department officials also pointed out that Mr. Abraham occasionally rebuffed energy industry executives. Officials said 23 requests for meetings from industry leaders were denied. Kenneth L. Lay and Jeffrey K. Skilling, the former top executives of the Enron Corporation, were among the executives who were turned away, officials said. But on March 29, 2001, Mr. Abraham met with two other Enron executives, Joe Hartsoe and Linda Robertson.

And Mr. Lay met with Vice President Dick Cheney, who headed the task force, on April 17, 2001, to discuss energy policy and the California energy crisis. David Addington, counsel to Mr. Cheney, has said that altogether, Enron executives had six meetings with task force staff members in 2001.

A coalition of nearly 30 environmental groups asked to meet with Mr. Abraham to discuss the energy policy on Feb. 20, 2001. Energy Department officials declined the request, citing Mr. Abraham's "busy schedule," department officials said.

More on the secret energy meetings:

Duke at Secret Energy Meetings



Energy Chief Raised Campaign Money

Bloomberg News – by R. Wells, G. Justice – March 30, 2002

WASHINGTON — Energy Secretary Spencer Abraham helped raise money for Republican candidates while traveling to promote President Bush's energy plan last year, documents and interviews show. In the two months after the energy policy's release in May, Abraham combined official visits with Republican fund raising in Tennessee, Oklahoma and California. Donors included executives whose businesses are affected by Energy Department actions, such as Citgo Petroleum and department contractor CH2M Hill.

Abraham's trips were detailed in some of the 11,000 pages of Energy Department documents released this week under court orders. Records also show Abraham consulted with campaign donors from the energy industry as a task force was drafting Bush's national energy policy.

"It's really troubling because it's hard to know which hat he is wearing," said Larry Noble, executive director of the bipartisan Center for Responsive Politics, which tracks campaign finances. "He's trying to sell administration policies at the same time he's collecting campaign contributions."

Abraham spokesman Joe Davis said the department has a "strict set of procedures" for keeping political activity separate from official business. "I'm sure it's the same procedure that the previous administration followed," he said.

Some environmental groups, such as the National Resources Defense Council, which sued to obtain the records, say the trips and documents bolster their complaint that they weren't consulted.

Bush tapped Vice President Dick Cheney in January 2001 to lead the task force. The administration has fought disclosure of who met with Cheney, Abraham and other task-force members.

The documents show Abraham met about the energy plan with at least 39 business executives and lobbyists.

After the task-force report's release, Abraham attended three political events in June and July while on trips to conduct Energy Department business.

After a visit to Oak Ridge National Laboratories in Tennessee, Abraham attended a June 18 event that raised $75,000 for Republican Rep. Zach Wamp.

The fund-raiser attracted mostly local party activists, but executives from Pilot Oil and Energy Department contractors Bechtel Environmental and CH2M Hill of Littleton, Colo., also attended.

Campaigns are required to reimburse taxpayers for the expenses of government officials who attend political events. Wamp said his campaign reimbursed "several hundred dollars" to the government.

The energy secretary also attended a June 25 fund-raiser for Sen. James Inhofe of Oklahoma that raised about $100,000, Inhofe spokesman Gary Hoitsma said. Donors included executives from Citgo Petroleum and five other Oklahoma-based oil companies. The Inhofe event followed a tour of a natural-gas rig at which Abraham touted the value of domestic exploration.

The campaign paid about $800 to reimburse taxpayers, Hoitsma said.

In July, Abraham spoke at a $500-a-person lunch for the National Republican Senatorial Committee in Los Angeles.

Representatives of Citgo, CH2M Hill and other companies attended.

As the energy policy was being drafted, Abraham met with Corbin McNeil Jr., chairman of Exelon, the biggest U.S. operator of nuclear-power plants.

On April 17, Abraham met with Haley Barbour, former Republican National Committee chairman and a fund-raiser. Barbour's lobbying firm represents the National Electric Reliability Coordinating Council, which includes companies that have an interest in regulation of power-plant emissions.

Abraham met twice with Tom Kuhn, president of the Edison Electric Institute.

Other Republican fund-raisers on his calendar included Peter Terpeluk, a lobbyist at American Continental Group.



Energy Recommendations Became Policy

New York Times – by D. Natta, N. Banerjee – March 30, 2002

WASHINGTON, March 27 — A review of documents released this week by the Department of Energy showed that several recommendations from energy industry representatives were written into the White House's national energy report and into an executive order signed by President Bush.

At a news conference today, lawyers for the Natural Resources Defense Council, said they had found the industry's recommendations among thousands of heavily edited documents released this week by the Energy Department. The environmental advocacy group sued the agency 11 months ago to obtain the records on its work regarding the national energy policy.

In one example cited by the natural resources council, the American Petroleum Institute, a trade group that represents the country's largest oil companies, submitted a proposed draft executive order on energy policy to the Energy Department on March 20, 2001. Two months later, Mr. Bush signed an executive order that the council's lawyers said was nearly identical in structure and language to the trade group's proposal. The executive order concerned government regulations that affect energy supply and distribution.

"Big energy companies all but held the pencil for the White House task force as government officials wrote a plan calling for billions of dollars in corporate subsidies, and the wholesale elimination of key health and environmental safeguards," John H. Adams, the president of the council, said at a news conference today.

Sharon Buccino, a senior lawyer at the resources council, said, "The oil companies seem to be putting words in our president's mouth."

White House officials said the energy report was the product of a balanced process that heard advice from a wide array of interests.

"As we have said before, we received input and ideas from a variety of sources, whether it be an industry group or an environmental group, an individual citizen or a member of Congress," said Anne Womack, a White House spokeswoman. "Of course, those ideas and suggestions were reviewed and those that were meritorious were discussed by the energy working group. If they were consistent with the goals of the group to provide more energy to the American people in a cleaner, safer way, then we incorporated those ideas into the final product."

Ms. Womack said she did not know whether the American Petroleum Institute's suggested executive order was used to draft Mr. Bush's May 18 executive order.

The resources council was one of several organizations that sued federal agencies for the release of records related to work on Vice President Dick Cheney's national energy policy, which was made public last May and then was used for an energy bill passed by the House of Representatives. Mr. Cheney has refused to release a list of industry executives who advised the administration, and the General Accounting Office, an investigative arm of Congress, has filed a lawsuit against the vice president to gain access to the list.

But a picture of the task force's work has begun to emerge through thousands of documents released this week. They show that some senior administration officials, including the energy secretary, Spencer Abraham, heard advice exclusively from executives and lobbyists from large energy corporations.

In another example cited by the resources council today, a lobbyist for the Southern Company, among the country's largest utilities, sent an e-mail message to a senior Energy Department official suggesting "another issue" should be added to the energy plan: a revision of the Clean Air Act. The suggestion was adopted in the national energy policy, which was released on May 17. Lawyers for the council said the recommendation had weakened enforcement actions against large utility companies, including the Southern Company.

A review by The New York Times of thousands of pages of documents released to the council and other groups found a stream of policy papers and e-mail messages to the Energy Department from the American Petroleum Institute, the leading lobbyist for the domestic oil industry.

Among the steps the petroleum institute advocated, was an executive order from the president to highlight a law that the industry group said was already on the books but was not being enforced. The institute's top lobbyist, Jim Ford, sent an e-mail message dated March 20, 2001, to Joseph Kelliher, who was the policy adviser at the Energy Department. The message included a draft executive order. Mr. Ford wrote that it was imperative that agencies consider the energy implications of environmental and other regulatory actions.

On May 18, the day after the release of the energy policy, Mr. Bush signed an order calling for just that.

One passage that defines what regulatory action is needed at other federal agencies reads very similarly to a passage in the draft order the petroleum institute submitted.

The petroleum institute's president, Red Cavaney, said today that his organization had been calling for such an executive order since spring 2000. Mr. Cavaney said that his group thought an executive order would highlight part of a law, the Environmental Policy Act, that called for federal agencies to analyze the impact of regulations and laws on energy supplies and prices.

The institute had submitted draft executive orders on other issues to the Clinton administration in the late 1990's, but they were ignored, Mr. Cavaney said. He contended that the institute did not get much of what it wanted in the draft order that it shared with the Bush administration. He pointed out that the Bush executive order on a topic important to the institute and the similarity of some of the language used may be coincidental.

"What we gave them was our best view of what we thought would make this system most efficient," Mr. Cavaney said. "What we got in and didn't, only the administration can answer that since they had the deliberative process."

The organizations and companies whose influence the resources council cited maintained that they were pushing for their best interests, an approach the council conceded was to be expected. The industry groups said it was up to the administration to determine whose opinions would get the most consideration.

"It's very flattering to think that one e-mail can determine energy policy," said Laura Gillig, a spokeswoman for the Southern Company.

Also today, the resources council asked a federal judge to compel the administration to immediately turn over 15,000 pages not released by the Energy Department this week.



One-Way Discussion on Energy

New York Times – March 30, 2002

(3/28/02) – Energy Department documents now confirm what everyone has long suspected — that in seeking guidance on its energy strategy last year, the Bush administration welcomed industry executives and lobbyists with open arms, while treating environmental groups like skunks at a picnic. Energy Secretary Spencer Abraham, for example, held meetings last year with dozens of industry representatives directly involving the energy plan between late January and May 17, when the White House released its energy report. But he did not meet with conservationists or consumer advocates. The documents also suggest that while staff members of Vice President Dick Cheney's energy task force eventually consulted environmentalists, they did not do so until late in the game, and then in a perfunctory manner.

Opening the deliberative process to more contrarian views would probably not have deflected Mr. Bush's advisers from the aggressively pro-industry strategy they favored from the start, a strategy that relies heavily on increasing supplies of traditional fossil fuels like oil, natural gas and coal. Still, it is distressing that on a matter of this magnitude so few opposing voices were heard. It is no less disturbing that the industries that had the most to gain — many of them major campaign contributors — played such an intimate and influential role in conceiving the final product.

The narrowness of the administration's search for advice was confirmed in more than 11,000 pages of documents released by the Energy Department on Monday in response to a lawsuit brought by the Natural Resources Defense Council. A separate suit against the department and six other government agencies has been filed by Judicial Watch. The documents were accompanied by a press release boasting that the department had surrendered 11,000 pages of documents whereas the Defense Council had asked for only 7,584. That might have been more convincing if so many of the pages hadn't been blanked out or sanitized. The department also provided a disingenuous chart suggesting significant similarities between the Defense Council's recommendations and those adopted by Mr. Cheney's task force. A closer examination of the two positions reveals that on matters of central importance — drilling on sensitive public lands, easing clean air regulations, increasing fuel economy standards — there are wide differences.

Thanks in part to the unbalanced Cheney report, the House produced an alarmingly one-sided bill with $27 billion in subsidies for traditional energy producers, and only $6 billion for conservation. In the Senate, a more promising bill has been weakened by industry pressure. That's what happens when only one side of an issue gets a fair hearing in Washington.



Secret Energy Meetings Disclosures

Washington Post – by D. Milbank, M. Allen – March 27, 2002

(3/26/02) - Energy Secretary Spencer Abraham met with 36 representatives of business interests and many campaign contributors while developing President Bush's energy policy, and he held no meetings with conservation or consumer groups, documents released last night show.

The information was released by the Energy Department just a few hours before a court-ordered deadline, and after 11 months of resistance by the administration to lawsuits by public interest groups seeking to determine who influenced the writing of the administration's energy plan.

A first review of the 11,000 pages of documents bolsters the contention of Democratic lawmakers and environmental groups that the Bush administration relied almost exclusively on the advice of executives from utilities and producers of oil, gas, coal and nuclear energy while a White House task force drafted recommendations that would vastly increase energy production.

Of the corporations that met with Abraham, all but a few were large contributors of unregulated soft money to the Republican Party during the 2000 election cycle. A dozen of the companies that had meetings with Abraham contributed $1.2 million to the GOP, mainly for Bush's election. Ten of the 12 gave more soft money to Republicans than Democrats.

Large portions had been deleted from the documents released last night by the Energy Department, the Environmental Protection Agency, the Agriculture Department and the White House Office of Management and Budget. Most attachments were missing and in many cases documents were withheld except for the subject line. Thousands of other documents were withheld entirely, and the groups that won release of the documents through lawsuits said they may return to court.

Abraham's meetings, between Feb. 14 and April 26 of last year, included groups such as the National Association of Manufacturers, the Independent Petroleum Association of America and the Nuclear Energy Institute. Top executives of Westinghouse Electric Corp., Duke Power, Entergy, Exelon Corp., UtiliCorp United (now Aquila Inc.), American Coal Co. and others sat down with Abraham.

Environmental groups said their efforts to meet with the energy task force were rebuffed. The Energy Department has said that environmental groups did not respond to its request for input, and the administration has said it held at least one substantive discussion with 10 environmental groups in late March, prior to the May release of the energy policy.

Because of the deletions and omissions, there is little information about what the donors and business interests were seeking in their high-level meetings. The documents released include hundreds of unsolicited suggestions from citizens, companies and lawmakers, most of whom received form responses promising the ideas would receive "close and careful attention."

Among the items released is a letter from the Alliance of Automobile Manufacturers favoring tax credits for hybrid-fuel and fuel-cell vehicles and similar incentives for fuel efficiency that were included in the Bush energy report.

One company, Citgo, urged the administration "to exercise federal authority to prevent states" from establishing separate fuel standards. These "boutique fuels" cause distribution problems for the industry, and Bush's energy plan directed the EPA to work with states to eliminate them.

An Energy Department e-mail indicating close coordination with industry notes that Texaco was seeking to help Bush's energy policy rollout. Texaco "has offered to try to produce an announcement on a 1500 megawatt facility at a TVA site in harmony with such a rollout," the May 7 e-mail said.

"Finally there is some evidence of who was actually shaping the energy policy," said Sharon Buccino, senior attorney for the Natural Resources Defense Council, which won the court order on Feb. 27 requiring the Energy Department's information release.

Buccino said the group plans to challenge many of the omissions in court. The Energy Department released a chart suggesting Vice President Cheney's task force had adopted nine NRDC recommendations, which Buccino called "an outright lie." Another 15,000 pages were withheld for privacy, security and other reasons, Energy officials said.

Larry Klayman, chairman of Judicial Watch, the watchdog group that won the court order requiring the OMB, EPA and Agriculture releases, said the White House appeared to be "playing games" with the release. He said he expects to "go back to court to seek testimony as to why we don't have the substantive e-mails."

Trent Duffy, OMB's spokesman, would not explain the deletions beyond saying, "The items that were part of the deliberative process were redacted."

Abraham issued a statement calling the energy plan "a balanced and comprehensive energy plan for America," and said that the administration "not only sought but included all viewpoints."

Several of the documents indicate that officials were aware of efforts to obtain information about their actions under the Freedom of Information Act, and they adjusted their correspondence to limit the release of materials. "We have an FOI request for all NEPP material," said one April 25 e-mail, referring to the task force. "Keep in mind that whatever I get I will have to include with it." Another e-mail about the FOIA requests asked, "Did you want me to include Kyle?" -- an apparent reference to Abraham's chief of staff, Kyle McSlarrow, whose e-mails were not included in the release.

Abraham held meetings with more than 20 other heads of oil companies and energy trade groups while the report was being written, but the Energy Department said those meetings included other topics.

Abraham's staff had several meetings with Enron officials, the documents showed. Enron, a major Bush donor that collapsed late last year and is facing a criminal probe, met with other representatives of the task force six times, the administration has disclosed. Energy Department officials said most of their meetings with Enron were not related to the energy policy. Abraham met with two Enron executives on March 29 as part of a meeting of 16 industry officials about the California electricity shortage. Energy officials said Abraham declined requests for meetings with Jeffrey Skilling and Kenneth L. Lay of Enron Corp.

The OMB materials that were released also indicate the energy task force's emphasis on production over conservation. One e-mail from Feb. 22 listed seven chapters for the energy policy report: short-term supply disruptions, consumers, economic impact, alternatives, increased production, infrastructure and energy security. There was no mention of conservation. An e-mail from March 22 made reference to an "energy efficiency" chapter, and a March 27 e-mail indicates that an "environment chapter" had been included. By April 2, there were "energy conservation targets."

The Energy Department documents indicate a late surge of activity to include more renewable fuels in the energy report. Karen Knutson, the deputy director of the task force, wrote to the Energy Department on April 27 seeking information about solar energy.

The OMB documents indicate Bush was involved in the shaping of the report well before it was released May 16. The task force briefed him on March 19, a schedule indicates, and a final report was circulated on April 23.

The e-mails also indicate that the task force was involved in Bush's March 13 decision to reverse a campaign pledge to characterize carbon dioxide as a pollutant that should be restricted, a position shared by environmental groups. A March 7 e-mail among task force staffers refers to "CO2 as a Pollutant." Ultimately, the report did not take a position on whether to raise fuel economy standards for vehicles, but the e-mails indicate there was extensive work on making recommendations about the corporate average fuel economy (CAFE) standards.

The EPA and Agriculture documents were also stripped of content except for meeting and publication schedules and interoffice chatter and bureaucratic fencing. "Lots of typos and the like," said an EPA official, "but I assume they'll catch those."

A long redacted section in one memo closed with a comment, "just kidding -- Mona."

Included among stacks of documents from the EPA and Agriculture Department were a few position papers from industry groups, including the Fertilizer Institute and the Clean Energy Group -- a coalition of electric power companies urging a "reasonable time frame" for pollution control strategies. Their pitches to the administration appeared to be familiar agendas the groups have lobbied for and testified about many times.

The subject lines on thousands of pages of government e-mail traffic described the wide horizon of energy and resource issues, from "boutique" gasolines blended for a particular region's needs to rules on offshore drilling disputes.

The documents released indicated some dissension about how the energy report was assembled. A March 28 OMB e-mail requests that "if you see any particularly egregious recommendations that you alert me to by tomorrow 10:30 . . . . I could raise it in the meeting to highlight the process problems." A Feb. 26 e-mail states: "The agency/chapter meetings got a little discombobulated."

Bush's energy plan encourages increased production of fossil fuels, including relaxed regulations and subsidies for the coal and nuclear industries, oil and gas drilling in the Arctic National Wildlife Refuge and construction of 1,300 to 1,900 power plants over the next 20 years.

Most of Bush's energy recommendations were incorporated in a bill that passed the House in August after heavy lobbying from labor unions. The Senate has begun debating its version and is expected to take up the most controversial part, the Arctic drilling, when lawmakers return from recess in two weeks.

Large donors meeting with Abraham included Duke Energy , which contributed $61,500 in soft money, all to the GOP, according to figures kept by the Center for Responsive Politics. Constellation Energy gave $38,950, all to the GOP. Northeast Utilities contributed $43,580, all but $2,000 to the GOP. UtiliCorp United gave $66,000, all to the Republicans. American Coal Co. gave $20,500, all to the GOP. Kerr-McGee gave $240,350, all but $20,000 to Republicans. Exelon Corp. gave $454,305, 74 percent to the Republicans.



White House Ties to Enron

Washington Post – by Dana Milbank – March 26, 2002

(Saturday, March 23, 2002; Page A01) - Congressional probes into Enron Corp. turned for the first time to the White House yesterday. A Senate committee issued subpoenas to the collapsed energy company and its accountant to see what role Enron had in creating the administration's energy policy.

The batch of 29 subpoenas significantly expands the Enron investigations in Congress to examine not only the firm's corporate failings but also its political contacts. The subpoenas add a new front in the battle to obtain information about the White House's energy task force; the General Accounting Office, the investigative arm of Congress, has sued the administration for task force records.

The Senate panel, the Governmental Affairs Committee, stopped short of issuing subpoenas to the White House or federal agencies themselves, instead demanding information about governmental contacts from Enron officials. The committee chairman, Sen. Joseph I. Lieberman (D-Conn.), said he would also write letters to the White House and the U.S. Archivist seeking information about White House contacts with Enron.

Lieberman issued the subpoenas with the consent of Sen. Fred D. Thompson (Tenn.), the committee's ranking Republican. The committee yesterday issued two subpoenas, to Enron and its accountant, Arthur Andersen LLP. It will issue another 27, to current and former Enron directors, on Monday, a committee spokeswoman said.

The request for documents goes back to January 1992, and extends to Dec. 12, 2001, covering both the Clinton and Bush administrations. Lieberman included the previous administration at the request of Thompson, who had earlier probed campaign finance practices of President Bill Clinton and his aides.

The move by the Senate committee escalates Congress's challenge to the Bush administration. Until now, the congressional committees examining Enron had not looked at the company's interactions with the White House. The GAO's lawsuit is not specific to Enron; it is seeking to identify all interested parties that had contacts with the task force. The administration has said the task force met with Enron officials six times.

Lieberman's committee demanded all documents from Enron and its directors regarding communications between Enron and the White House or other federal agencies about the national energy policy, which was drafted by a task force led by Vice President Cheney.

In addition, the committee seeks all documents from Enron and its directors related to their broader interactions with the White House concerning eight federal agencies: the Commerce, Energy and Labor departments; the Overseas Private Investment Corp.; the Export-Import Bank; the Securities and Exchange Commission; the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission.

Under the subpoenas, Enron and its directors must also provide documents regarding contacts on any subject with the eight agencies. Committee officials said the request for contacts with the White House was limited to energy policy and matters involving Enron and the eight agencies to avoid charges from the White House that lawmakers are on a "fishing expedition."

The Andersen subpoena demands all documents reflecting communications the accounting firm had with the White House regarding Enron.

The committee had previously issued two subpoenas, to Andersen and Enron, but those involved contacts with the SEC, CFTC, FERC and the Labor Department, and did not include communications with the White House.

"We are trying to be as thorough as we can, to turn over every stone we can turn over to understand what government agencies knew about Enron's practices and whether there was anything they could have, or should have done to prevent the company's collapse, and to make sure something like this never happens again," Lieberman said in a statement.

Lieberman was not available yesterday for further comment.

Thompson, at a committee hearing Thursday, said: "I think the scandal value of all this is close to nothing now, if that's what people are looking for."

White House spokeswoman Claire Buchan said yesterday the White House had not yet received Lieberman's letter. "The committee is entitled to pursue its investigation as it sees fit," she said. "It has avoided politicizing the issue thus far and we hope they continue to avoid that."

Also yesterday, Sen. Byron L. Dorgan (D-N.D.) said the Senate Commerce Committee may issue subpoenas to force Enron to disclose the names of investors in its web of partnerships. Dorgan, a member of the committee, said that if the company does not provide the information in the next three weeks, "I'd expect we'd proceed with subpoenas."



Fox in the Treasury Henhouse

St. Petersburg Times – by Sydney P. Freedberg – March 19, 2002

(3/17/02) - In the boom days of the 1990s, Mark Weinberger earned a handsome living helping dozens of the world's wealthiest corporations reduce their taxes.

As a lawyer-lobbyist in Washington, he built a reputation for winning corporate tax breaks and helping preserve tax loopholes for corporate clients.

And while he never exactly defended tax shelters, he strongly objected to proposed rules to curb them.

"Unnecessary . . . premature, exceedingly vague and far reaching," he called those proposals in congressional testimony in 1999.

Now, Weinberger has a new role in Washington. As assistant secretary of the treasury for tax policy, he is President Bush's top tax adviser.

In the wake of Enron, looming Social Security deficits and a surge of post-9/11 patriotism, his Office of Tax Policy is under increasing scrutiny.

Is a fox in the henhouse?

Absolutely not, he says, bristling at the suggestion that the Treasury Department has given corporations undue tax breaks.

Yet since the Bush administration took office in January 2001, the department has promoted policies that critics in Congress say favor the multinationals, including some of the same companies and business coalitions that once employed Weinberger or some of his top aides.

The department crippled an international effort to crack down on offshore tax havens, the critics say. It narrowed rules designed to help the IRS shut down corporate tax shelters. And the department made it easier for companies to win tax breaks for research.

Weinberger, 40, isn't the only business-friendly official at Treasury. The Bush administration filled other top department posts with a number of corporate lawyers and lobbyists who once worked for big companies with a stake in decisions they are now making.

Recent publicity about the offshore tax havens of Enron and other companies has triggered calls on Capitol Hill for a crackdown on corporate shelters, which let some companies avoid billions in taxes every year.

Last month Sen. Charles Grassley, R-Iowa, asked Treasury Secretary Paul O'Neill why the administration hasn't done more to fight corporate shelters.

In an interview with the St. Petersburg Times, Grassley also blasted accountants who devise and market shelters, lawyers who write letters to help them pass IRS muster and a "powerful lobbying interest that has grown up, justifying these shelters and industrializing the whole process.

"It may not be illegal, but it's immoral and unethical," says Grassley, the ranking GOP member on the Senate Finance Committee.

Some Democrats are more blunt. They say Bush administration policy gives the impression of a stacked tax system, where corporations on chummy terms with government officials get breaks at the expense of less wealthy taxpayers who pay more as a result.

"This administration believes every major corporation should be able to follow the Enron example by paying little or no taxes," says Rep. Lloyd Doggett, D-Texas. "Instead of closing loopholes, it wants to widen them."

Weinberger, whose former lobbying firm made $22-million in three years, calls such complaints ridiculous.

The Bush administration, he says, is "vigilantly" continuing the Clinton-era crackdown on corporate shelters and soon will announce even tougher antishelter measures.

What's more, the Treasury Department is studying how often corporations use tax shelters and whether flaws in U.S. tax laws are driving corporations to set up shell units offshore.

When he approved changes in antishelter rules, Weinberger says, he wasn't watering them down. He was simply trying to make the regulations fairer and more manageable for overworked IRS agents.

"I took an oath to work for the taxpayers," he says, adding that he has complied scrupulously with ethics rules designed to bar officials from using public office for private gain. "If I didn't believe I could do that, I wouldn't have taken the job."

Lucrative work

A bright, genial father of four who is known for his workaholic lifestyle, Mark Alan Weinberger came to Washington in 1987, the year he earned his law and MBA degrees at Case Western University.

He began his career in the tax department of the international accounting firm Ernst & Young, spent 31/2 years in government posts and eventually cofounded a lobbying firm, Washington Counsel, in 1996.

It was lucrative work. The company quickly became one of Washington's top tax lobbying firms.

Weinberger himself earned $650,000 as a lobbyist in 2000, according to a financial disclosure report he filed a year ago. The report doesn't disclose the full extent of his dealings with corporations, and Weinberger declines to elaborate on them or his financial affairs.

But the report suggests his assets, including stock holdings, were valued at between $2,420,098 and $9,301,000. Some of the stock was in companies he used to represent.

Ethics rules don't prevent government officials from promoting policies they once advocated as paid lobbyists. Likewise, Treasury spokeswoman Tara Bradshaw notes, Weinberger wasn't required to sell his stock because his decisions focus on broad policy issues, not actions benefiting specific companies.

About 10 months before he joined Treasury, his lobbying firm was acquired by his old employer, Ernst & Young, and became Ernst & Young Washington Council.

Weinberger directed Ernst's national tax department, reporting $1.5-million in income from May 2000 until February 2001, when Bush nominated him for the Treasury post.

Then, he says, to avoid even the perception of impropriety, he carefully followed a self-imposed policy: During his first year in public office he did not discuss tax business with his old firm or any of his former clients.

A fuzzy line

At the Treasury Department, where Weinberger makes $130,000 a year, he and his staff of 110 lawyers and economists issue a mass of fine-print orders, minute regulations and guides interpreting the 9,510-page tax code.

While many of their actions go unnoticed by the public, each move is normally dissected by megacompanies looking for a sentence or word that justifies a tax loophole.

Increasingly, that puts Weinberger in the white-hot center of the debate over tax shelters.

Not only is he President Bush's key tax spokesman. He also plays a crucial role in defining what is -- and what is not -- an illegal corporate shelter.

Now, Weinberger says he always thought corporate tax shelters were a problem. He is even signaling the administration's willingness to support new antishelter legislation.

But when he was a lobbyist testifying before Congress, he put the words "corporate tax shelters" in quotation marks and attributed controversy over them to rhetoric, anecdotal evidence and press accounts.

It's a fuzzy line. Some corporate tax shelters are legal, but others stretch the boundaries of the law.

Pat O'Brien, a corporate lawyer in Fort Lauderdale and former U.S. Customs agent, says some of his clients draw the line this way: "If you go to prison at the end, it was tax evasion; if you don't, it was tax avoidance."

In the simplest terms, the aim of many shelters is to reduce a company's taxes by shifting some taxable profit to a place where it won't be taxed.

Typically, tax shelters capitalize on arcane quirks in the tax code. They involve fantastically complex foreign transactions that are extremely hard for the IRS to track or for ordinary taxpayers to understand.

Sen. Bob Graham, D-Fla., worries that with an ever-more complex code offering companies lots of loopholes to devise shelters, more and more revenue will be lost offshore.

Companies that don't manipulate the system get penalized, Graham says, and that "creates a general environment where there is an acceptance for people to avoid their tax obligations."

A Who's Who of clients

Offshore tax shelters have been an issue in Washington and America's corporate boardrooms for at least three decades. Laws and regulations have evolved over the years, but the framework of the debate has remained the same.

On one side are the reformers, who lament that a complicated, inequitable tax code favors multinational corporations, costing the federal government billions of dollars and penalizing everyday wage earners.

"The entire tax system has come to mirror Washington itself," President Ronald Reagan said in a 1985 radio address, "a complicated, frustrating, unfair mystery of legalistic gobbledygook and loopholes never designed, it seems, to help everyday wage earners, only those who can afford high-priced attorneys and accountants."

On the other side are the corporations. They complain that they are at a disadvantage because many of their overseas competitors pay lower taxes in their own countries. What's more, U.S. companies face double taxation, with two countries imposing taxes on the same income.

Those inequities, compounded by complexities in the tax code itself, encourage companies to seek tax shelters and, in some cases, move their headquarters overseas.

As the economy boomed in the mid 1990s, big companies and their accountants stepped up their efforts to make tax laws more favorable.

Using fancy computer models, big accounting firms began to offer corporations ever-more complex tax-minimization strategies. They sold the plans in return for a chunk of the tax savings.

The Big Five accounting firms also gave millions to candidates for national office, especially to lawmakers who served on congressional tax-writing committees.

Enter Mark Weinberger. A couple of years after leaving his job as tax counsel for then-Sen. John Danforth, a member of the Senate Finance Committee, he and a bipartisan group of onetime Capitol Hill lawyers, legislative aides and federal agency officials founded the lobbying firm, Washington Counsel, in 1996.

They signed up a star-studded cast of clients that read like a Who's Who of corporate America, including Aetna, Anheuser-Busch, AT&T, General Electric, General Motors and Microsoft.

Weinberger says he can't imagine that any of his former clients paid less than their fair share of taxes.

Just because a corporation takes advantage of tax rules doesn't mean it is a tax dodger, he adds. "Making the assumption these companies did something abusive is unfair," he said.

A study of corporate tax lobbying shows that eight corporations on the client list of Weinberger's firm got $18-billion in tax breaks from 1996 to 1998. Four of those firms paid no taxes at all in 1998, according to the study by three research advocacy groups, including the labor-backed Institute on Taxation and Economic Policy.

Many of Weinberger's clients also paid handsomely for lobbying help.

For example, Merrill Lynch & Co., the giant brokerage house, paid Weinberger's firm more than $1.6-million in lobbying fees from 1997 to 1999, according to the Center for Responsive Politics, a group that tracks money in politics.

At the time, Merrill was embroiled in a dispute with the IRS over tax shelters that the company marketed almost a decade earlier to big-name clients.

Last August, Merrill agreed to make a "substantial payment" to the IRS to settle the controversy. The company neither admitted nor denied that the shelters were illegal, but according to CFO.com, a newsletter for financial executives, Merrill avoided civil sanctions.

Weinberger says he never discussed the tax-shelter controversy with anyone at Merrill. He also takes great exception to the suggestion that as a lobbyist, he worked to preserve existing tax loopholes or open new ones.

"I represented taxpayers on issues where they had a right to be heard by the members of Congress who were writing the laws that would impact them," he says.

Notice 98-11

From time to time, President Clinton's Treasury Department voiced concern over corporate tax avoidance. But it wasn't until well into his second term that the department got aggressive about it.

Consider the fight over a department proposal known as "Notice 98-11." It started in 1998, when Treasury officials grew alarmed about a fast-growing tax-avoidance maneuver. It allowed U.S. corporations to use tax havens to reduce their U.S. and foreign taxes on profits from overseas operations.

When the department moved to close the loophole by issuing Notice 98-11, Weinberger and other tax lobbyists swung into action. They formed coalitions of multinational corporations with names like the Global Competitiveness Coalition and the 98-11 Coalition.

It's impossible to know which companies were in the coalitions because lobbyists for such groups aren't required to disclose who their clients are or how they spend their money.

Weinberger and the other lobbyists argued that the government hadn't proved a single case where a company did anything wrong. Besides, they said, Treasury was stepping on Congress' turf.

The corporations got a bipartisan group of tax-writing lawmakers to write letters to Treasury Secretary Robert Rubin, urging him to withdraw Notice 98-11.

He did. The department killed the loophole-closing provision.

To critics, the incident proved the government couldn't stand up to the corporations. To supporters, 98-11 was a bad idea from the start, evidence of a tax code in desperate need of simplification.

Showing muscle

After the 98-11 episode, the Clinton administration grew more concerned about companies manipulating the tax system to shift money overseas.

Though corporations were making record profits, IRS data suggested that the share of profits that was taxed might be going down. While the tax burden on many companies was falling, reformers said, the burden on many individuals was rising.

Yet on Capitol Hill, the corporate tax lobby showed its muscle time and again.

With Weinberger at the helm, a group called the R&D Credit Coalition pushed to renew a corporate tax credit for research and development.

In a climate of intense international competition, he contended, the United States should do everything within its power to encourage research and development. Critics countered that drug corporations and other firms were getting a costly tax break on research they would have done anyway.

When Treasury Secretary Lawrence Summers launched a crusade to stamp out a blizzard of corporate tax shelters, Weinberger spoke out against it.

In Clinton's 2000 budget, the administration unveiled steps to radically change the way the Treasury Department dealt with corporate shelters. Summers called shelters "the most serious compliance issue threatening the American tax system."

Instead of trying to find, understand and stop the transactions after they occurred, Summers wanted to make them so risky and costly that companies would not use them.

Among other things, the plan called for doubling the penalty imposed on corporations using improper shelters. It also targeted accountants and lawyers who promoted abusive shelters.

Summers' actions came after several prominent attorneys acknowledged that accounting firms sometimes paid lawyers hefty fees for legal opinions to make shelter schemes sound legitimate.

Some accountants, too, had admitted they felt pressure to match tax-avoidance strategies of competitors, even if they were shams.

In a March 1999 appearance before the House Ways and Means Committee, Weinberger questioned how big the problem really was.

He called for better enforcement of rules already on the books. The Clinton proposals were so ill-defined that they would sweep perfectly legitimate business transactions into the net while "restricting the ability of corporate taxpayers to operate efficiently," he said.

The lobbying, much of it by big accounting firms, worked. A bill by Rep. Doggett languished. With an election approaching, the Senate Finance Committee didn't push legislation either.

Summers scrapped his more sweeping proposals, and some corporate spokesmen called it a victory for aggressive tax planners and good news for many on Wall Street.

Back to government

Weinberger's return to government service began in October 2000, when Clinton appointed him to serve on the Social Security Advisory Board. Four months later, when President Bush asked him to be his top tax policy adviser, the onetime lobbyist jumped at it.

He wanted to make the tax system better, he says, and his wife, Nancy, was supportive, even though she knew it meant longer hours and less pay.

"She was also excited about meeting the president," he says.

With his wife and two of their four young children in the audience, Weinberger read a short speech at his confirmation hearing before the Finance Committee.

The hearing lasted 20 minutes. Only two senators, Grassley and Montana's Max Baucus, a Democrat, were present, and both praised Weinberger.

On March 1, 2001, the Senate voted unanimously to confirm him.

Shortly thereafter, Weinberger and the Treasury Department were put on the defensive after they seemed to waver in their support of a yearslong effort to crack down on offshore tax havens. Treasury Secretary O'Neill said at the time that the antihaven initiative by the Paris-based Organization for Economic Cooperation and Development could unfairly force some countries to raise taxes.

Weinberger vehemently denies the administration tried to gut the antihaven initiative. He calls it a "roaming and aimless effort" that needed to be refocused. Now, he notes, the Bush Treasury Department has done what the Clinton administration never did: sign agreements to exchange tax information with three tax-haven countries as part of a broad attempt to expose tax cheats. More treaties are on the way, he adds.

Last August, Weinberger signed off on proposed regulations that critics say narrow the definition of an illegal tax shelter.

He counters that the rules were simply clarified and "tightened" so they didn't trigger reporting of legitimate business transactions.

And late last year, in keeping with a campaign promise by President Bush, the Treasury Department proposed new rules broadening the research tax credit, which the Clinton administration had restricted in its last days.

Companies that could get an added break are a pantheon of American capitalism. Among them: Boeing, Microsoft, General Motors, Pfizer, all former clients of Weinberger's firm.

The changes already were in the works when Weinberger arrived at Treasury. The administration wanted to make the rules less confusing, for companies and IRS auditors, he says.

Weinberger says he resents any suggestion that his corporate background -- or that of his aides -- influences how they run the tax-policy office.

These days, he arrives at his office overlooking the White House by 7 a.m. His cell phone rings constantly, but he rarely hears from old clients, he says. If he does, he's usually too busy to take the calls.

What will he do when he leaves government?

"I don't plan on doing any lobbying," he says.

-- Times researchers Kitty Bennett and Barbara Oliver contributed to this report.

The clients

Washington Counsel, the lobbying firm co-founded by Mark Weinberger, reported receiving $22,098,000 in lobbying income from 1997-99. The firm or Weinberger provided services to the following companies or groups.

  • 98-11 Coalition
  • Aetna
  • AIG Financial
  • Allegiance
  • Allegiance Healthcare
  • Allen Holding
  • Amcor Task Force
  • American Express
  • American Insurance Association
  • American Oncology Resources
  • American Staffing Association
  • Anheuser-Busch
  • APL Ltd.
  • ARC Spectrum
  • Associated Group
  • Association of American Railroads
  • AT&T
  • AT&T Capital
  • Avco Financial Services
  • Aventis
  • Baxter International
  • Bear Stearns
  • Bell Atlantic
  • Beneficial Management
  • Bertelsmann AG
  • BHC Communications
  • Boeing
  • BP Amoco
  • Bond Market Association
  • Buffett Foundation
  • California Biomass Energy Alliance
  • Cash Balance Coalition
  • Caterpillar
  • Central Gulf Lines
  • Champion International
  • Chase Manhattan
  • Charles Schwab
  • Citigroup
  • Coalition to Preserve Tracking Stock
  • Commonwealth Edison
  • Connell
  • Coordinating Committee for International Tax Reform
  • Crowley Maritime
  • CSX
  • CTec Services
  • Directors Guild of America
  • Disney
  • Donaldson Lufkin & Jenrette
  • Doris Duke Charitable Foundation
  • DuPont
  • Eaton Vance
  • Eaton Vance Management Co.
  • EDS
  • Enterprise Foundation
  • ExxonMobil
  • Fannie Mae
  • Farrell Lines
  • FedEx
  • Food Distributors International
  • Ford Motor
  • Gaylord Entertainment
  • GE Capital Assurance
  • GE Mortgage Insurance
  • General Electric
  • General Motors
  • Gila River Indian Community
  • Global Competitiveness Coalition
  • Goldman, Sachs & Co.
  • Goodyear Tire & Rubber
  • Grassland Water District
  • Greater Media
  • Group Health
  • Gulfcoast Transit Co.
  • Haz-X Compliance Verification Services
  • Hercules
  • Hewlett Packard
  • HP Bulmer Holding
  • Hyatt, Gilbert P.
  • IBM
  • International Tax Reform Group
  • Investment Company Institute
  • JM Family Enterprises
  • Johnson & Johnson
  • Large Public Power Council
  • Limited
  • Local Initiatives Support Coalition
  • Lockheed Martin
  • MacAndrews & Forbes
  • Maersk
  • MCG Northwest
  • McLane
  • Marsh & McLennan
  • MCI Communications
  • Merrill Lynch
  • Microsoft
  • Monsanto
  • Mutual of Omaha
  • NAREIT
  • National Association for Home Care
  • National Association of Health Plans
  • National Association of Professional Employer Organizations
  • National Association of Real Estate Investment Trusts
  • National Association of State Farm Agents
  • National Association of Temporary & Staffing Services
  • National Cable Television Association
  • National Defined Contribution Council
  • National Foreign Trade Council
  • National Multi Housing Council
  • Neptune Orient Lines
  • Neu Holdings
  • Pfizer
  • Piedmont Environmental Council
  • Procter & Gamble
  • R&D Credit Coalition
  • R&D Regulatory Reform Coalition
  • R&D Tax Credit Coalition
  • R&D Tax Regulations Coalition
  • Recording Industry Association of America
  • Rhone-Poulenc Rorer Pharmaceuticals
  • RJR Nabisco
  • Rubber Manufacturers Association
  • Skadden, Arps, Slate, Meagher & Flom
  • Sea-Land Service
  • Securities Industry Association
  • Sierra Pacific Industries
  • Straddle Rules Tax Group
  • Swap Funds Coalition
  • Tax Fairness Coalition
  • Tele-Communications
  • Texas Utilities
  • Texas Utilities Services
  • United Airlines
  • United Technologies
  • U.S. Chamber of Shipping
  • US Oncology
  • Vanderbilt University
  • Viaticus
  • Willkie, Farr & Gallagher
  • Working Group on Tax Reform
  • Ziff Investors Partnership

-- Sources: Center for Responsive Politics, U. S. Senate, U.S. Office of Government Ethics


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