Some Common Concerns 23/8/02 9:39 am Page 72
Some Common Concerns
therefore a large investor such as BP to build it.55 In October 1998, BP accepted an offer from the government and began plans to develop the fields. By early 2000, BP had a proposal for a fast development plan in place; in March of that year, Ecopetrol eased the terms of its contract once again, finally accepting what BP had proposed back in 1998.56
At it in Alaska IMILAR, patterns are seen in the Trans-Alaska Pipeline System – the project on which John Browne worked for the first decade of his career. The journal Multinational Monitor, has reported that TAPS has been found to have overcharged the Alaskan government in transport fees for carrying the state’s share of the oil and to have underpaid royalties on the companies’ share. In 1991/92, the State of Alaska brought charges against the Alaskan oil companies that the companies had undervalued their oil and overvalued transportation costs. BP settled out of court for US$ 185 million and ARCO for US$ 287 million.57
S
Even this payment was only a fraction of what the companies had gained from their financing arrangements. A report by a former oil and gas specialist in the Alaska governor’s office found in 1993 that Alyeska (the pipeline consortium led by BP) had overcharged transport fees by more than US$ 2billion, an amount which would grow to an estimated $11.7 to $22.1billion by the year 2015.58 In a separate case, BP and other oil companies were also prosecuted by the US Department of Justice under the False Claims Act, for having underpaid royalties for oil produced on federal and Indigenous lands since 1988. BPAmoco agreed in April 2000 to pay US$ 32 million, to the US government and to the whistleblowers who had filed the original complaint, to settle the case. The case related to royalty underpayment across the whole of the USA, but the biggest share was in Alaska. It is not just the federal and state governments that lost out so as to keep up the profitability of the Trans-Alaskan pipeline companies. In late 2000, the Oregonian newspaper gained access via the US Freedom of Information Act to 4,000 pages of documents from the files of the Federal Trade Commission on BP’s 1999–2000 takeover of ARCO. These showed that BP was selling oil to Asian refineries at prices lower than it was selling to US refineries on the West Coast, in order to create a US oil supply shortage. The Commission had uncovered e-mail messages sent between BP managers who talked about “shorting the WC [West Coast] market” in order to “leverage up” the prices there.59 72
Neutron John
BP, the tax avoider NE problem for government finance departments trying to tax multinational businesses is that these corporations move their profits around the world to the country of least taxation or to where the rules are most favourable to them. In March 2000, UK Chancellor Gordon Brown attempted to restrict multinationals’ ability to do this by requiring British companies’ profits to be taxed in Britain rather than overseas. He faced an uproar from business, led by Peter Wyman, the senior UK tax partner at BP’s accountants, PricewaterhouseCoopers.
O
John Browne, BP’s chief executive, weighed in, too. He remarked to The Observer, with what the national newspaper described as uncharacteristic bluntness: “This is very bad for business. It came totally out of the blue. And it should be scrapped”.60 The lobbying effort was successful. In June, three months after the new rules were announced and just two weeks before they were due to be implemented, the UK Treasury backed down, and announced that the rules would only apply to companies recording profits in offshore tax havens (such as Bermuda and the Cayman Islands). BP used its multinational status to exploit another tax loophole in 1998, in its merger with Amoco, a move which this time cost the UK government US$ 800m. The loophole allowed companies to avoid stamp duty reserve tax.g The Inland Revenue complained that BP had not used the law “as Parliament intended”, and the Treasury immediately closed the loophole after the BP merger to prevent other companies following its example.61 John Browne was the main architect of that merger deal, but accountants PricewaterhouseCoopers handled the tax aspects. Indeed, BP is famed for its legal avoidance of tax. One oil analyst, Bruce Evers of Investec Henderson Crosthwaite, has described BP as “the master of tax charges”.62 With such an ability to keep profits in the corporate coffers rather than in the state’s hands, it is hardly surprising that John Browne is held in high regard by the finance sector. What is more surprising however is that he is not held in lower regard by the governments whose money he has stripped by helping his company reduce its tax bill.
g Stamp duty reserve tax (SDRT) is a tax on transfers (purchase and sale) of company shares. Since 1969, transfers of shares denominated in a foreign currency and held in a depositary or clearance system were exempted from SDRT.
73