US threatens post-Enron corporate tax clampdown

A blistering Congressional report yesterday, exposing colossal and virtually impenetrable tax avoidance schemes by the failed energy giant Enron, is generating new demands for an overhaul of America's corporate tax laws and a clampdown on overseas tax shelters.

The four-volume, 2,700 page study released by the Joint Committee on taxation found that Enron – before its bankruptcy in December 2001 the seventh-largest corporation in the US – exploited the tax code so that between 1996 and 1999 it paid no federal taxes. In the six years before that, it paid just $325m (£201m). In 2000 and 2001, it paid only $63m.

The report also suggested that Enron in effect bribed tax officials to get its way. Charles Grassley, a Republican Senator from Iowa and chairman of the Joint Committee, cited as an example a "conference" when tax officials were treated to a week of wining and dining, fishing, and golf. Some of them must have been deliberately collaborating with Enron, he said.

More serious in the long term, however, was the web of tax schemes and tax havens spun by Enron. Its complexity, the committee declared, simply overwhelmed the Internal Revenue Service. Max Baucus, the senior Democrat on the Senate Finance Committee, said: "The IRS really couldn't figure it out even if it tried."

According to the report, the company's tax department became a profit centre, with its own annual revenue targets. "Show me the money," was stamped on an internal Enron document about one transaction, one of many such released yesterday.

The tax-avoidance schemes read like the plot of "a conspiracy novel," Mr Grassley said. "We are going to have the veil torn off the world of tax shelters and the world of manipulation of accounting." Nor do the accusations stop at Enron. Other corporations were adopting its techniques. Enron itself had been aided by a network of auditors, investment banks and law firms. Those mentioned include the accounting firms Deloitte Touche and Arthur Andersen, which was convicted of obstruction of justice for deliberately destroying Enron audit documents.

The investment banks Chase Manhattan, now part of JP Morgan Chase, and the Bankers Trust unit of Deutsche Bank AG were also cited. Among the leading law firms which blessed some of the transactions included the Houston-based Vinson & Elkins and Akin Gump Strauss Hauer & Feld, of Washington DC.

The report throws new light on the double accounting system employed by US companies, with one set of books for the IRS and the other for their shareholders. In 2000, Enron paid $34m of tax on declared profit of $979m, from revenues that year of $101bn. In all, the report identifies 12 separate schemes between 1995 and 2001, which may have saved Enron more than $2bn.

The scale of the offshore tax haven problem was illustrated in a recent study by the Harvard economist Mihir Desai. In 1998, he found, corporate profits reported to the tax authorities were $155bn less than those reported to shareholders. Much of the difference, which cost the IRS up to $54bn in lost revenue, is almost certainly due to such shelters.

These latest findings will only increase the impetus on Capitol Hill to crack down on this kind of avoidance. As yesterday hearing began, Mr Grassley warned that a new law would be retroactive to the date of 13 February, 2003. He said: "Today's date will not move, it will not slip." The report calls for severe penalties to limit the shelters, and new powers to be given to the IRS.

The report also provides what Mr Grassley called "eye-popping" details on the compensation packages for top Enron executives, which have caused outrage as thousands of lesser employees saw their pensions and savings wiped out as its shares became worthless.