Failed energy giant Enron avoided taxes by means of a series of "incestuous" offshore deals with top Wall Street banks and law firms, according to a congressional report released Thursday.
The report, compiled by the Joint Committee on Taxation, said the aggressive deals allowed Enron to pay no US federal taxes from 1996 to 1999.
The report also showed Enron's former top executives "essentially wrote their own compensation packages" and used the former energy trading giant as a bank for personal loans.
"Enron not only engaged in accounting gimmicks to boost stock prices, but Enron repeatedly abused the tax code. And they had help from investment bankers, lawyers and accountants," said Senator Max Baucus, the top Democrat on the Finance Committee, which is responsible for writing tax law in the chamber.
"The report reads like a conspiracy novel, with some of the nation's finest banks, accounting firms and attorneys working together to prop up the biggest corporate farce of this century," said Senate Finance Committee Chairman Charles Grassley, a Republican.
Enron filed for bankruptcy in December 2001 after a series of off-the-books partnerships which it had used to hide debt, inflate profits, and generally cook the books came to the attention of regulators, forcing it to restate its financial accounts.
Once the seventh-largest company in the US, Enron imploded after restating its third-quarter 2001 earnings by US$1.2 billion.
Senators at Thursday's hearing signaled they are committed to closing down the kind of offshore transactions Enron engaged in to avoid paying taxes.
"So to all you lobbyists sitting out in the crowd today, write it down. If a company does an Enron deal after today, don't come in here whining that we aren't being fair," Grassley said in reference to the numerous bank and accounting firm lobbyists sitting in the hearing room.
Lindy Paull, the taxation committee's chief of staff, said in testimony before the Finance Committee that Enron in the mid-1990s began to view the role of its tax department as "a source for financial statement earnings, thereby making it a profit center for the company."
She said Enron "deliberately" entered into transactions that had "little or no business purpose."
"Remarkable in many res-pects was Enron's ability to parse the law to produce a result that was contrary to its spirit and not intended by Congress or the Treasury Department," Paull testified.
Paull said that in her belief, there should be some "severe penalties imposed" on the financial and accounting parties that aided Enron in the transactions.
The report, the result of a year-long probe, highlighted that Enron enlisted the help of Arthur Andersen LLP, its former auditor, to avoid its US tax obligations.
The report disclosed that Enron was also assisted by Deloitte Touche, and Chase Manhattan bank, which is now part of JP Morgan Chase and Bankers Trust, which has subsequently merged with Deutsche Bank AG.
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