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The
Corporate Reform Weekly
Vol
V, #14, April, 3 2006
In
Short
Lobbying
Reform
1.
Senate passes weak lobbying reform bill
War
Profiteering
2.
Report finds more evidence of intentional overcharging, exorbitant over
charging at Halliburton
Scandal
3.
Prosecution rests in Enron trial; Skilling, Lay will testify soon
Corporate
Taxes
4. IRS
Commissioner suggests corporations should make tax returns public
5.
Bill to require corporate tax disclosure introduced in California
This
Week’s Action Item
Demand
accountability for corporate taxes
Lobbying
Reform
1.
Senate passes weak lobbying reform bill
Last
Wednesday, on the same day that disgraced lobbyist Jack Abramoff was sentenced
to 70 months in prison, the US Senate voted 90-8 to approve a lobbying reform
package that will actually do very little to change the lobbying culture in
Washington. The bill makes mostly cosmetic changes.
The
legislation does the following:
-- Makes it
illegal for lobbyists to buy meals and providing gifts for senators. BUT
executives can still take lawmakers out to meals and give gifts. Sen.
Russell Feingold (D-Wisc.), who opposed the bill, told reporters: "If
these companies can still give gifts, we will not have a real lobbyist gift
ban. We won't be able to look the American people in the eye and say we just
banned gifts from lobbyists, because we didn't."
-- Makes it
easier for senators to challenge so-called “earmarks,” which are often
snuck into bills at the behest of lobbyists. BUT earmarks attached to spending
bills remain exempt from such challenges.
-- Requires more
and more frequent disclosure by lobbyists of their dealings with lawmakers and
their campaign contributions (information will now be provided quarterly,
instead of semiannually). The information will be available publicly through an
online database.
-- Slightly
slows the revolving door. Instead of a one-year “cooling off” period between a
Capitol Hill or White House job and a lobbying job, former staffers and elected
officials would now have to wait two years.
Senators voted
down amendments that would have:
-- Created an
independent Office of Public Integrity that would have been empowered to
investigate ethics violations. Instead, the ineffective and ineffectual Senate
Ethics Committee will remain in place. That amendment, sponsored by Sen. Susan
Collins (R-Maine) received only 30 votes. Collins told reporters:
"The public does not trust a system where we set our own rules,
we're our own advisers, we're our own investigators, we're our own prosecutors,
we're our own judges, and we're our own jurors."
-- Banned
lawmakers from traveling on corporate jets for free. The bill does expand
disclosure of the practice, however.
The most
reform-minded Senators all opposed the bill.
Sen. Barack
Obama, (D-Ill)., who voted against the bill, told reporters: “The Senate
has missed a once-in-a-decade opportunity to clean up the way we do business in
Washington.”
Sen. John
McCain (R-Ariz.), another no vote, added: “The good news is there will be more
indictments, and we will be revisiting this issue.” McCain said that though the
bill’s passage was “a major feat,” it was still “very, very weak.”
Watchdog
groups were even more critical.
Common Cause
president Chellie Pingree told reporters: "I really think that if
members of the Senate think they can pass a bill that is largely window
dressing and not deal with the really tough issues and then go back to the
voters and convince them they have done something, they have another think
coming. This bill lacks the critical things that would really change the
atmosphere of corruption in Washington. There's very little that breaks down
this nexus between lobbyists as fundraisers and sources of campaign funds,
which is much of the root of what goes on that creates the scandals."
Next up is the
House, where support for lobbying reform is even weaker. It is unclear if the
House will even be able to pass a measure, let alone one that matches the
Senate bill.
“Senate
Approves Limits on High-Profile Lobbying: The measure addresses earmarks, gifts
and contribution reporting; it passes 90 to 8. But critics say it's just
'window dressing.'” By Mary Curtius, Los Angeles Times: http://www.latimes.com/news/printedition/asection/la-na-lobby30mar30,1,4413070.story?coll=la-news-a_section
“Senate OKs
bill to help curb lobbyists' influence': Critics complain that loopholes remain
-- corporate jet travel still OK, CEOs can pick up restaurant tabs.” By Zachary
Coile, San Francisco Chronicle : http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/03/30/MNGMTI0AF01.DTL
“Victory For K
Street,” David Donnelly, TomPaine.com: http://www.tompaine.com/articles/2006/03/31/victory_for_k_street.php
War
Profiteering
2.
Report finds more evidence of intentional overcharging, exorbitant over
charging at Halliburton
In the first
analysis of Halliburton’s second major Iraq contract – to rebuild oil fields in
southern Iraq – Rep. Henry Waxman (D-Calif.) announced last week that he had
found evidence of an “overwhelmingly negative” performance, including
intentional overcharging and exorbitant costs. According to the documents,
government contract officers had a hard time overseeing Halliburton subsidiary
Kellogg Brown & Root, in part because the company filed many inaccurate and
misleading progress reports and expense vouchers. Halliburton’s work was also
plagued by delays.
Some
highlights from Rep. Waxman’s analysis:
* Intentional Overcharging: Halliburton repeatedly overcharged the taxpayer,
apparently intentionally. In one case, “[c]ost estimates had hidden rate
factors to increase cost of project without informing the Government.” In
another instance, Halliburton “tried to inflate cost estimate by $26M.” In a
third example, Halliburton claimed costs for laying concrete pads and footings
that the Iraqi Oil Ministry had “already put in place.”
* Exorbitant Costs: Halliburton was “accruing exorbitant indirect costs at a
rapid rate.” Government officials concluded that Halliburton’s “lack of cost
containment and funds management is the single biggest detriment to this
program.” They found a “lack of cost control … in Houston, Kuwait, and Iraq.”
In a partial review of the RIO 2 contract, DCAA auditors challenged $45 million
in costs as unreasonable or unsupported.
* Inadequate Cost Reporting: Halliburton “universally failed to provide
adequate cost information,” had “profound systemic problems,” provided
“substandard” cost reports that did “not meet minimum standards,” and submitted
reports that had been “vetted of any information that would allow tracking of
details.” Halliburton produced “unacceptable unchecked cost reports.”
* Schedule Delays: Halliburton’s work under RIO 2 was continually plagued by
delays. Halliburton had a “50% late completion” rate for RIO 2 projects.
Evaluations noted “untimely work” and “schedule slippage.”
* Refusal to Cooperate: Evaluations described Halliburton as “obstructive” with
oversight officials. Despite the billions in taxpayer funds Halliburton has
been paid, the company’s “leadership demonstrated minimal cooperative attitude
resolving problems.”
For details,
see:
http://www.democrats.reform.house.gov/story.asp?ID=1032
http://www.corpwatch.org/article.php?id=13423
Scandal
3.
Prosecution rests in Enron trial; Skilling, Lay will testify soon
Government
prosecutors last week rested their case in the trial of former Enron CEO Jeff
Skilling and company founder Kenneth Lay, after eight weeks of testimony
and 22 witnesses. Next week, the defense takes its turn, and both Skilling and
Lay are expected to testify in their own defense.
A number of
news outlets turned in their mid-term evaluations of the trial, and the general
consensus was that prosecutors have done a solid job demonstrating that Lay and
Skilling knew the company was built on a crumbling house of faulty and
fraudulent accounting , even as they continued to proclaim that the company was
in good financial health.
Reuters’ Matt
Daily offered this assessment:
“Federal
prosecutors wove a strong, coherent case against Ken Lay and Jeffrey Skilling,
legal experts said on Wednesday, avoiding complex financial details while
placing the former Enron Corp. CEOs at the crux of crimes at the company.”
“The
government rested its case on Tuesday after two months of testimony from former
Enron executives, accountants and employees whose accounts of a company on the
rocks stood in stark contrast to the glowing portrayals Lay and Skilling
presented about Enron in the months before it collapsed.”
"They
stated a theme at the outset and they stuck to it," said Samuel Buell, a
former member of the U.S. Justice Department's Enron Task Force and current
visiting professor at the University of Texas School of Law in Austin, told
Reuters.
USA Today’s
Greg Farrell, meanwhile, offered this assessment.
“In this
trial, the task force has avoided pitfalls that can hobble securities fraud
cases. The story of Enron's implosion involves complex accounting maneuvers
that the company used to maximize its reported earnings, but prosecutors have
steered clear of almost all references to those accounting issues, fearing they
might lose the jury.
“Instead, they
took a simple approach, arguing that Lay and Skilling knew Enron was
misrepresenting earnings. Prosecutors brought in eight cooperating witnesses
who had pleaded guilty to Enron-related crimes. They and others testified that
Lay and Skilling knew Enron was in trouble in 2001, even as the CEOs touted it
as a model of robust health to investors and analysts. The government's case
broke down into several easy-to-follow allegations:
• “Skilling
lied about Enron Broadband Services' earnings.”
• “Skilling
lied about Enron Energy Services' earnings.”
• “Skilling
encouraged sleight-of-hand accounting transactions.”
• “Lay ignored
warnings that Enron's business was sinking.”
For more, see:
“Act 2:
Enron's Skilling and Lay to take the stand,” By Greg Farrell, USA TODAY: http://www.usatoday.com/money/industries/energy/2006-03-31-enron-trial-act2_x.htm
“Prosecution
Rests in Enron Trial,” By KRISTEN HAYS, The Associated Press: http://www.businessweek.com/ap/financialnews/D8GL3T580.htm?campaign_id=apn_home_down&chan=db
“US scored
against Enron's Lay, Skilling,” By Matt Daily Reuters: http://today.reuters.com/business/newsarticle.aspx?type=ousiv&storyID=2006-03-29T224319Z_01_N29276680_RTRIDST_0_BUSINESSPRO-ENRON-TRIAL-EXPERTS-DC.XML
“Halfway
point,” Houston Chronicle Editorial: http://www.chron.com/disp/story.mpl/editorial/3760615.html
Corporate
Taxes
4.
IRS Commissioner suggests corporations should make tax returns public
In a recent
speech, IRS Commissioner Mark Everson argued that lawmakers should consider
passing legislation that would require corporations to make their tax returns
public, suggesting that it would make corporations more accountable.
In recent
years, the gap between the earnings corporations report on their taxes and
report to their shareholders has grown steadily. One recent Harvard study found
that in 1998, corporations reported $1.63 in income to shareholders for every
$1 they reported to the federal government for tax purposes. Enron, for
example, reported $3.625 billion in profits to shareholders between 1996 and
2000, but only $76 million to the IRS.
"If we
are not willing to operate the two systems by the same set of rules, it makes
sense to discuss whether corporate tax returns should be public," Everson
told reporters.
Over the last
several years, corporations have grown increasingly aggressive in their tax
returns, and while the statutory tax rate on large corporations is 35 percent,
corporations now pay about 18 percent. That’s down from 20.1 percent in 1998,
down from 22.9 percent in 1996 and 26.5 percent in 1988, according to Robert
McIntyre of the Institute on Taxation and Economic Policy (ITEP) and Citizens
for Tax Justice. And between 1996 and 1998, 41 of those 250 companies paid less
than zero federal income taxes in at least one year, earning a whopping $3.2
billion in Treasury rebates between them despite combined profits of $25.8
billion.
These days,
corporate revenues represent only about 7 percent of federal tax receipts. But
sixty years ago, corporations paid half of the U.S. tax bill. Corporate income
tax revenues, meanwhile, fell from $207 billion in 2000 to $132 billion in
2003, according to CBO estimates.
For more, see:
“IRS Suggests Publicizing Corporate Returns” http://www.usatoday.com/money/companies/2006-03-15-corporate-returns_x.htm
5.
Bill to require corporate tax disclosure introduced in California
Perhaps making
good on IRS Commissioner Everson’s suggestion that corporations should
disclose their tax returns, California Assemblyman Johan Klehs recently
introduced the Honest Corporate Tax Reporting Act (AB 675), which would
require corporations to disclose any differences in the profits they report to
shareholders and the profits they report to the state tax authorities.
The bill is
supported by CALPIRG, which was actively involved in its introduction.
“Unfortunately,
too many corporations don’t pay their fair share of taxes, increasing the tax
burden for the rest of us,” said Emily Rusch, Advocate with CALPIRG. “The
Honest Corporate Tax Reporting Act will discourage companies from hiding
profits from the state tax board.”
For more
details, see:
http://calpirg.org/CA.asp?id2=22943
This
Week’s Action Item
Demand
accountability for corporate taxes
In a recent
speech, IRS Commissioner Mark Everson argued that lawmakers should consider
passing legislation that would require corporations to make their tax returns
public, suggesting that it would make corporations more accountable.
In recent
years, the gap between the earnings corporations report on their taxes and
report to their shareholders has grown steadily. One recent Harvard study found
that in 1998, corporations reported $1.63 in income to shareholders for every
$1 they reported to the federal government for tax purposes. Enron, for
example, reported $3.625 billion in profits to shareholders between 1996 and
2000, but only $76 million to the IRS.
"If we
are not willing to operate the two systems by the same set of rules, it makes
sense to discuss whether corporate tax returns should be public," Everson
told reporters.
Meanwhile, In
California, Assemblyman Johan Klehs recently introduced the Honest
Corporate Tax Reporting Act (AB 675), which would require corporations to
disclose any differences in the profits they report to shareholders and the
profits they report to shareholders.
As THIS WEEK’S
ACTION ITEM, please tell your elected representatives
in Washington to support IRS Commissioner Everson and tackle the issue of
corporate tax disclosure. At a time when the federal deficit continues to grow,
corporations are paying less and less of their fair share in taxes. Let your
elected officials know you want full disclosure of corporate taxes, especially
if corporations are going to report very different income figures to
shareholders.
· Contact your senators: http://www.senate.gov/general/contact_information/senators_cfm.cfm
· Contact your congressional
representative: http://www.house.gov/writerep/
And if you
live in California, let your state Assembly representative know you want them
to support AB 675 – The Honest Corporate Tax Reporting Act
