[ OUR OPINION ]
State should avoid
dubious claim
of tax fraudALLEGATIONS by two accounting professors last year that ChevronTexaco had bilked Hawaii of $563 million in unpaid taxes seemed worth pursuing, so then-Gov. Ben Cayetano called upon a Chicago law firm to look into it. The firm concluded last month that the claims were off base, but the professors are insisting they were right. It is possible that those allegations could be the subject of a civil lawsuit, but the state should avoid involvement in such costly and dubious litigation.
THE ISSUE
Professors whose allegations of tax fraud by ChevronTexaco were rejected by the Hawaii attorney general said they stand by their claim.
Professors Jeffrey Gramlich of the University of Hawaii and James Wheeler, formerly of the University of Michigan, now retired in Lanikai, allege that state tax fraud mirrored federal fraud. The allegations stem from a complicated arrangement involving Indo- nesian oil that Chevron and Texaco bought from Caltex, a joint venture of the two companies before their merger. The Internal Revenue Service began an audit of the company in 1991 and received a $675 million settlement three years later over the use of foreign tax credits.
IRS official Brian Hom called the Caltex arrangement "nothing but a sham" and went to court in an attempt to gain access to company documents. Hom's superiors in Washington declared in 1998 that the tax credits cited by the company were proper and ordered a halt to what had been a continuing investigation. A report by the Hawaii Attorney General's Office, based on the investigation by the Chicago law firm of Winston & Strawn, concluded that the bulk of the IRS settlement in 1994 was unrelated to Caltex.
The professors based their allegations on numerous company documents entered into the court record in the IRS case. A federal magistrate in California ordered the company to divulge 129 documents that Chevron claimed were protected as attorney-client communication, and a U.S. District Court judge ordered the unveiling of 519 other documents.
Lawyers are allowed to reveal their communications when their services are used to perpetrate a crime. However, most of the documents in the Chevron case remain under court seal. Chevron allowed Winston & Strawn access to all 648 of the documents -- to which the professors did not have access -- and the law firm concluded the documents did not indicate large tax evasion, the attorney general's report indicated.
Chevron paid back taxes to the state in an amended return covering 1983 to 1986, when Chevron acknowledges the Caltex arrangement occurred. However, the professors maintain that the tax evasion began long before those years.
The professors are calling for public access to the Chevron documents, but divulging them publicly could place the attorney general in the situation of violating attorney-client privilege. The only proper method for the professors to see the documents would be through the discovery process of a civil lawsuit, if they can show the documents probably would reveal fraudulent activity. No such lawsuit exists, but the professors are free to proceed on that course.
