State puts off
making a call on
Chevron tax caseThe firm hired to investigate plans
to submit a report in the next 10 days
A law firm hired to investigate multimillion-dollar tax fraud allegations against ChevronTexaco Corp. told the state yesterday whether it has a case, but the state doesn't plan to disclose the law firm's opinion or say what the next move is until the state can review the evidence.
The Chicago law firm Winston & Strawn, hired by the Cayetano administration six months ago to pursue the case, gave a verbal opinion to the state and plans to submit a written report within the next 10 days, said Hugh Jones, state deputy attorney general.
"They've given us at least, verbally, highlights of their findings," Jones said yesterday. "I think we are approaching the end of this mystery, as it's become of sorts."
The Lingle administration has until June 30 to make a decision whether to sue Chevron, continue investigating, initiate settlement talks or drop the matter.
The state will eventually announce its decision, and the Attorney General's Office plans to explain its reasons, Jones said.
An attorney for Winston recently declined to talk about the case.
The state began investigating the tax allegations late in the Cayetano administration, after two accounting professors released a research report that said Chevron evaded billions of dollars in state and federal taxes through a complex oil-pricing scheme over several decades.
The professors, Jeff Gramlich and James Wheeler, based their September 2002 report on a batch of documents that became public from a tax battle in the 1990s between Chevron and the Internal Revenue Service.
Chevron paid $675 million to settle the dispute in 1994. Texaco paid an undisclosed settlement. The two companies merged in 2001.
The professors have said the case should be reopened by the IRS or by individual states, because the professors believe there's evidence of fraud. The professors have been seeking access to more than 500 federal audit documents that have not been made public.
Based on 17 documents that are public, the professors calculated the state of Hawaii is owed approximately $563 million in back taxes, including penalties and interest. The calculation, which covers taxes from the years since 1971, relies on assumptions that the professors made because they don't have access to Chevron's confidential tax information.
Chevron has said the professors' report contained nothing new, and that there is no basis to reopen the tax case.
The Cayetano administration hired the Winston law firm to investigate the matter. Under Winston's contract, the state does not incur any costs and Winston would receive a portion of any settlement.
Richard Bissen Jr., the state's first deputy attorney general, recently said if Winston wants to sue Chevron, the state will sue. Bissen was out of town yesterday and hadn't heard Winston's verbal opinion on the case, Jones said.
A lawsuit would pit the Lingle administration against the second-largest U.S. oil company, ChevronTexaco, which has some ties to the administration.
Chevron's public relations firm is Communications-Pacific Inc., whose chief executive, Kitty Lagareta, was an unofficial adviser to the 2002 Lingle campaign. Russell Pang, Lingle's media relations chief, is a former vice president of Communications-Pacific, where he represented Chevron.
Lingle's Attorney General Mark Bennett represented Texaco as a lawyer during the state's now-settled antitrust lawsuit against the oil companies. Bennett recused himself from the Chevron tax investigation to avoid conflicts of interest.
State of Hawaii