Business Page – Diary of a week - Spreading the oil wealth - narrowly

Sunday, April 16th, 2006

Once again Business Page comes from the United States of America and covers a few significant and relevant items or matters reported in the US press during the past week. As the week closed it was the unbelievable retirement package paid by Exxon Mobil - parent company of the oil giant Esso, one of the companies operating in Guyana - to its retiring Chairman Lee R Raymond. What is particularly angering to the American public is that the news comes on top of the US$36 billion profit - about 70 times the national budget of Guyana - announced by the company recently.

They reason that such profits conflict with the oil companies' explanation that the price surge at the pumps is due to supply factors. In the past year the price at the US pump has jumped more than 20 per cent, and there is a fear that US consumers will soon pay three US dollars per gallon, prompting calls in this free market Mecca for government intervention!

But back to Mr Raymond's package, which is among the highest compensation packages ever - though well short of Disney's Michael Eisner, the all-time highest with a package of more than $550 million. The oil industry has undergone further consolidation from the days when the 'seven sisters' - five American, one British and one Dutch - manipulated prices, played politics and controlled the world's oil wherever situated. Venezuela's Chavez and Iran's Ahmadinejad notwithstanding, the oil companies' stranglehold on the world's precious non-renewable resource has barely diminished, and they regard any talk of the oil companies sharing the burden of oil price hike brought about by any supply constraints as pure heresy. Can anyone really be worth US$144,573 per day or US$6,000 per hour even as he sleeps?

Poor George:

President George Bush must be regretting his decision to quit his Texas oil business for politics, which earned him and his wife in 2005 a mere $619,000 before tax of just under $200,000, and a poor job rating from his employers, the American people. He is unlikely to be a drawing card for speaking engagements which are the main source of income for former presidents. Maybe he will go back to oil.

Pardon the aside, but how can Guyana which for years has struggled to raise per capita GDP to US$1,000 afford to exempt from taxes the income of the President, top people in the judiciary, the Ministry of Finance, the Revenue Authority, the Anti-Poverty Unit and a host of others? Clearly when it comes to taxes, some are outside and above the law - the very antithesis of the rule of law and the underpinning of our constitution.

Immigrants:

Across the USA, hundreds of thousands of mainly Mexican immigrants have taken to the streets as Washington grapples with how to deal with some twelve million illegal immigrants whose contribution and cost to the US economy is the subject of intense debate. Are they taking the work from the 30% of American high school students who fail to graduate and are barely able to take up the declining number of blue collar jobs, or are they doing the work that Americans and legal immigrants regard as too menial? With the USA, Canada and Mexico in a free trade area (NAFTA), mass deportation is clearly not an option, and many undocumented Guyanese in the USA must have built their hopes on a package that included an amnesty and a generous guest worker programme.

Part of the immigration reform under consideration is the construction of a wall along the Mexican-US border while employers of the illegal immigrants have expressed concerns that legalising the status of the undocumented millions would embolden them to demand immediate improvement in their pay and conditions.

Enron:

And that poster child of corporate maladministration and greed, Enron, is once again in the news with former Enron Chairman Ken Lay and CEO Jeffrey Skilling taking the stand in the case US v Skilling and Lay. The trial pits some of Lay and Skilling's former colleagues as witnesses in the case to make the company's top brass pay for deceiving investors, including over employees' pension funds, even as they made millions from dumping their own holdings when they must have known that the company was in deep financial trouble. These guys are nothing if not bold and one has to admire Skilling's brass when he claimed that Enron's fundamentals were so strong there was no need to engage in the kind of securities fraud that the prosecution is alleging!

The case is the culmination of years of painstaking work, in which the prosecution built its case block by block and deal by deal with the lesser executives of Enron, who in return for some clemency have agreed to testify against their former bosses. The trial has been receiving wide coverage and the press reports have been so severe, that had they taken place in Guyana the lawyers for Lay and Skilling would be going to court daily for ex parte injunctions against publishers and producers. And as for building any case against corporate leaders, the DPP, the police and the Securities Council would have been blocked by brazen lawyers demanding that they cease, desist and apologise.

Going to jail for lying - no lie!

In sports, baseball great Barry Bonds is facing a grand jury looking into a case of lying to officials during an investigation into possible steroid use by athletes. A casual disregard for the truth is associated with so many public figures, politicians, professionals and businesspersons in Guyana that, were they speaking under oath, we would not have enough room in our jails. Just think of the number of fake tax returns that are submitted each year by persons and businesses who solemnly declare that their tax return is 'true, correct and complete in every respect, and fully discloses my income from all sources' chargeable under the tax laws. And they get their accountants to join them in the lies!

In a country often associated with serious wrongdoings by the rich and the powerful, several leading politicians with close connections to the White House have had to resign their positions and have either been convicted or are facing criminal charges on corruption and political financing improprieties. It makes one wonder why third world countries like Guyana are so different, and whether their condition is the result of a general state of lawlessness or vice-versa. Unless Guyana returns to the rule of law, the road to recovery will not only be longer but much rockier.

The tax system in the fight against crime:

And speaking of taxation, I found out that it was the tax authorities that helped to bring down Al Capone, one of America's most notorious criminals and a symbol of the collapse of law and order in the United States during the 1920s and '30s.

His was a leading role in the illegal activities that lent Chicago its reputation as a lawless city. He controlled all kinds of businesses - bookie joints, gambling houses, brothels, horse and race tracks, nightclubs and distilleries and breweries with a reported income of $100,000,000 a year. He owned a sizable interest in yes, a laundry operation in Chicago. Capone's spy network, including newspaper boys and policemen, helped him to discover and pre-empt plotters, while his skill at isolating and killing his enemies guaranteed his success and survival. Ruthless as he was, Capone had another side, and often treated people fairly and generously. He was the first to open soup kitchens after the 1929 stock market crash and he ordered merchants to give clothes and food to the needy at his expense.

But it was not his murderous exploits which led to his demise, nor was his philanthropy able to save him in the end. It was the simple matter of taxes, as the government used a 1927 Supreme Court ruling that illegal profits were in fact taxable to indict Capone for income tax evasion. With all his business done through front men and assets in the name of others, he was a non-person for tax purposes.

But that did not deter Frank Wilson of the IRS's Special Intelligence Unit, who was assigned the task of dealing with the Capone tax audit. Wilson soon discovered a cash receipts ledger that not only showed the operation's net profits for a gambling house, but also contained Capone's name. It was more than the smoking gun that linked taxable income to Capone as this was followed by the admission of his tax lawyer Lawrence P Mattingly in a letter to the government that Capone indeed had an income.

The beginning  of the end:

Wilson's ledger, Matt-ingly's letter, and the coercion of witnesses was the basis of a 1931 indictment for income tax evasion for the years 1925-29. The vinegar in the poisoned chalice was a charge of failure to file tax returns for the years 1928 and 1929 and conspiracy to violate Prohibition laws from 1922-31. Capone, hoping to make a plea bargain, pleaded guilty but Judge James H. Wilkerson was neither intimidated nor generous. Capone changed his pleas to not guilty hoping instead to bribe the jury. Again he was outfoxed by Judge Wilkerson with some last-minute switch of the jury panel.

Although only five of the twenty-three counts stuck, these were sufficient for Judge Wilkerson to sentence Capone to a total of ten years in federal prison and one year in the county jail. After serving the full term, Capone came out from jail a broken man in poor health, and the life of one of the US's most notorious criminals soon mercifully ended.

Is there a lesson for Guyana in all of this?

Have a happy Easter holiday!