[ OUR OPINION ]
RESEARCH conducted by two accounting professors has provided an opportunity by the state to collect $563 million in back taxes that allegedly went unpaid by oil companies by means of an oil-pricing scheme. The state hired a Chicago law firm to investigate a possible lawsuit in the final days of the Cayetano administration. Governor Lingle should heed encouragement by consumer protection leaders in the Legislature to pursue the case. Pursue ChevronTexaco
tax-fraud case
THE ISSUE State legislative consumer-protection leaders have urged Governor Lingle to seek back taxes from ChevronTexaco.
The Internal Revenue Service already has received a $675 million settlement from ChevronTexaco Corp. for back taxes from 1979 to 1987 for alleged fraud through a complex oil-pricing scheme involving a project in Indonesia. The scheme was in operation from 1970 to 2000. A lawsuit by the state of Hawaii would be based largely on hundreds of documents entered into the public record in federal court in San Francisco.
The scheme was described in a report released in September by Jeffrey Gramlich, a University of Hawaii accounting professor, and James Wheeler, a Lanikai resident and retired accounting professor at the University of Michigan. The professors' estimate of Hawaii's potential windfall is based on assumptions about the amount of crude oil brought into the state from Indonesia, the source of 36 percent of Hawaii's oil from 1990-1997.
Such a lawsuit may not be the "slam dunk" envisioned by Sen. Ron Menor, chairman of the Senate Commerce, Consumer Protection and Housing Committee. Anzai has pointed out that the case may be time-consuming because fraud is difficult to prove. The Chicago law firm of Winston & Strawn has agreed to represent the state in return for a share of any award or settlement.
Lingle said in December that she considered the investigation among the top five legal issues the state faces. "I feel very strongly about this," she said, "because when anybody doesn't pay their taxes, it means that the tax burden is then spread to the rest of us to a greater extent than it would have been otherwise."
The governor has opposed the gasoline price caps approved by last year's Legislature and can be expected to decline to implement the caps next year, when the law takes effect. Her aggressive pursuit of the tax investigation would demonstrate her willingness to play hardball with the oil industry.
Attorney General Mark Bennett has appropriately recused himself from any involvement in the investigation because of his representation of Texaco -- Chevron and Texaco merged in 2001 -- in an antitrust lawsuit settled by the state a year ago. The issue has been assigned to Richard Bissen, first deputy attorney general, and Deputy Tax Director Kurt Kawafuchi.
If Winston & Strawn is able to construct a strong case, the state should avoid any temptation to accept a small settlement to ease immediate budget burdens. The IRS settlement amounted to a quarter on the dollar. The state should do much better than that.
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