Tuesday, September 24, 2002


State probe justified
in Chevron case


A study alleges that the oil company fraudulently evaded $563 million in Hawaii taxes in a pricing scheme.

NEW evidence that ChevronTexaco may owe Hawaii $563 million in taxes as a result of an oil-pricing scheme should spur the state to pursue an investigation, not only to recover the money, but to serve notice that companies must adhere to the law. Although he is near the end of his term, Governor Cayetano -- who four years ago initiated a state lawsuit against gasoline price fixing here -- should set the wheels in motion for a probe.

The information comes from larger research by two accounting professors who said earlier this month that ChevronTexaco had evaded $3.25 billion in state and federal taxes from 1970 to 2000 through deals with a subsidiary operating in Indonesia. Jeffrey Gramlich, a University of Hawaii accounting professor, and James Wheeler, a Lanikai resident retired from the University of Michigan, have more recently calculated Hawaii's losses at $563 million.

The scheme involved Caltex, a joint venture of Chevron and Texaco before their merger. Chevron would agree to buy oil from Caltex at prices that the Indonesian government set at an average $4.55 a barrel higher than the market price. Caltex had to pay a 56 percent income tax to Indonesia on its inflated income, but it was able to claim a dollar-for-dollar deduction from its U.S. income taxes. The scheme was made profitable by Indonesia compensating Caltex with additional free oil.

An Internal Revenue Service investigation in the early 1990s resulted in the company having to pay a $675 million settlement covering the years 1979 through 1987. The IRS's district office in San Francisco, where Chevron was based, was continuing its investigation, but the agency's Washington office directed that the case be closed.

Indications are that foreign policy decisions overruled further inquiry as Indonesia, with the world's largest Muslim population, has become of crucial importance to the United States. Cayetano's spokeswoman said the governor "suspects that it may not be legal issues involved, but rather foreign policy considerations." He intends to seek more information on the matter from the IRS and the Justice Department, but has not committed the state to a particular action.

Wheeler and Gramlich have approached officials in Hawaii and California about pursuing the case. California appeared interested, but as energy problems have mounted in that state recently, the matter has been pushed aside, they say. As Attorney General Earl Anzai points out, fraud is difficult to prove, especially in a case as complex as this one. The cost to the state could be enormous and the case time consuming.

Formidable as it may be, the state should not abandon the issue without pressing the federal government further. If nothing else, the publicity -- as it did when the gasoline suit was in the headlines -- may keep prices at the pump in check and save consumers a few pennies. The oil company won't go broke.


Published by Oahu Publications Inc., a subsidiary of Black Press.

Don Kendall, Publisher

Frank Bridgewater, Editor 529-4791;
Michael Rovner,
Assistant Editor 529-4768;
Lucy Young-Oda, Assistant Editor 529-4762;

Mary Poole, Editorial Page Editor, 529-4790;
John Flanagan, Contributing Editor 294-3533;

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