Bush Again Defends His Actions as a Member of Oil Company’s Board

WASHINGTON — President Bush and the White House on Wednesday again fended off questions about whether his record as a director of an oil company undermined his administration’s push for corporate reform.

The latest controversy concerned companies locating overseas to escape U.S. taxes, which Bush says he opposes.

“We ought to look at people who are trying to avoid U.S. taxes.... I think American companies ought to pay taxes here,” Bush said Wednesday, one day after he signed legislation establishing stricter accounting standards for U.S. corporations.

Harken Energy Corp., on whose board of directors Bush served more than a decade ago, established a subsidiary in the Cayman Islands, a move that would have shielded profits from off-shore oil drilling operations that Harken was starting near Bahrain, an island nation in the Persian Gulf, if the work had produced oil.

Asked about the Harken subsidiary, Bush said he had opposed an “arrangement with Bahrain, a drilling venture there.”

White House Press Secretary Ari Fleischer denied that the subsidiary was set up to avoid taxes. “Any oil that was produced in Bahrain and sold in the United States would have been taxable in the United States,” Fleischer said.

He added: “No oil was produced, so I think it’s a moot question.”

While taking a more aggressive stance against business corruption in recent weeks, Bush has been forced to defend his record as a Harken director.

He was tardy in reporting to the Securities and Exchange Commission his sale of nearly $850,000 worth of stock in Harken 12 years ago. Also, weeks after he sold the stock, its value tumbled. That prompted an insider trading inquiry by the SEC; the agency closed the investigation in 1991 after finding “insufficient evidence” to proceed.

These aspects of Bush’s tenure with Harken have been publicly aired before, including during the 2000 presidential campaign. But they have drawn new attention during the push for the business reform bill that Bush signed into law Tuesday.

In the latest matter, minutes from Harken Energy’s board of directors meetings in the fall of 1989 show that Bush and the company’s seven other directors were briefed on details of the Bahrain venture, and all of them ultimately signed off on it.

However, Bush strongly opposed the Bahrain deal when it first came before the board that year, said an official of the Harken subsidiary involved in the project. That opposition was based on reasons unrelated to offshore corporate registrations and taxes.

The official, Monte Swetnam, now retired, was president of Harken Exploration Corp., the Harken subsidiary that included the Cayman Islands-registered Harken Bahrain Oil Co. The subsidiary was created to explore Bahrain’s territorial waters. Swetnam also was the project’s chief architect and advocate within the company.

“George Bush did oppose it, and to my recollection, he was the only board member who opposed the Bahrain venture,” Swetnam recalled in a telephone interview Wednesday. “In fact, it became my job to win over George Bush.”

Efforts by companies to register in foreign tax havens to avoid paying U.S. taxes have drawn increasing political attention in recent weeks. The Senate on Wednesday approved a measure that would prohibit companies from doing business with the Pentagon if they take such a step.

Democrats said the report of the Harken subsidiary demonstrated that as a business executive, Bush failed to follow the practices he is now advocating.

“If it is true, I think it gets harder and harder to take his position on corporate accountability seriously,” said Senate Majority leader Tom Daschle (D-S.D.).

Swetnam said he couldn’t recall whether Bush and the rest of the board were told that Harken Bahrain Oil Co. was created and registered in the Cayman Islands.

Rather, he said, Bush opposed the Bahrain exploration venture because he believed such a costly and ambitious international exploration project was far beyond Harken’s experience, expertise and financial means.

“I do know I was able to reduce his fears significantly,” Swetnam said.

That is confirmed by the Harken board meeting minutes obtained by The Times.

At the company’s Dec. 6, 1989, board meeting, which Bush attended, Swetnam extensively laid out “the potential benefits which the Company could realize from this opportunity,” the minutes stated.

“The Board unanimously approved HEX [Harken Exploration Corp.] proceeding toward finalization of a formal agreement with the state of Bahrain,” the minutes said.

Swetnam recalled that Harken’s decision to register its Bahrain subsidiary in the Caymans “had been recommended by our advisors”--specifically, Harken’s auditors at the time, Arthur Andersen.

“It had to do with repatriating funds and the like,” Swetnam said. “It wasn’t set up to be a tax dodge or anything.”

Many American multinational companies register subsidiaries that do business overseas in such Caribbean island nations as the Caymans to facilitate the movement of cash, as well as to insulate profit from U.S. taxation.

In the case of Harken Bahrain Oil Co., though, profit was never an issue. The venture, which was formally signed in late January 1990 and gave Harken rights to any and all oil or gas discovered and produced off Bahrain’s shores, involved drilling two dry holes before it was abandoned.

In the end, Harken lost little of its own money.

The bigger loser was the Bass family of Fort Worth, which joined with Harken to finance the drilling in Bahrain.

The family spent more than $20 million from its privately held Bass Enterprises Production Co. on the venture in exchange for half of any future profit.