Governor renews oil scheme issueState asking why IRS ended probe
By Frank Cho
Advertiser Staff Writer
Gov. Ben Cayetano has ordered the state attorney general to determine why federal officials dropped their investigation of an oil-pricing scheme involving Chevron that may have cost the state more than a half-billion dollars in tax revenue.
The investigation stems from a report by two university professors that alleged Chevron and the government of Indonesia structured oil prices to avoid billions of dollars in U.S. taxes.
"Whenever allegations of significant tax fraud are brought forward by credible sources, it is our responsibility to investigate," Cayetano said. "Not only have these oil companies been ripping off consumers at the pump, as the state's lawsuit uncovered, but according to a recently released report they have also defrauded Hawai'i taxpayers of over a half-billion dollars."
Chevron declined to comment yesterday about the governor's call for an investigation.
Earlier this month Chevron said in a statement: "We are surprised that these issues are being raised again because they are not new, have been rigorously reviewed by the government and are without merit."
The state sued Chevron and several other major oil companies in 1998 alleging they conspired to fix gasoline prices in Hawai'i. The state settled the antitrust suit for $35 million in January without going to trial.
Earlier this month, professors Jeffrey Gramlich and James Wheeler leveled new allegations against the oil company in a report that accused Caltex, a joint venture of Chevron and Texaco, of overstating their costs in an effort to avoid U.S. taxes on oil imported from Indonesia.
That report estimated the alleged scheme may have cost Hawai'i taxpayers about $563 million between 1970 and 2000.
The IRS had taken Chevron to court for tax evasion on those same allegations and, in 1994, Chevron and the San Francisco IRS office settled the case. Texaco also resolved all of its comparable issues with the IRS. Earlier this month, Chevron in a statement said a memorandum issued by the IRS determined that the Indonesian taxes were legitimate.
The governor said he wants the attorney general to determine why the federal government "backed off" from its investigation.
"I suspect that it may not be the the legal issues involved, but rather, foreign policy considerations that caused the federal government to retreat," Cayetano said.
State Attorney General Earl Anzai said he will be seeking documents from the Internal Revenue Service case as well as Chevron's amended tax returns to the state.
"These allegations need more study because they come from people that we consider reputable and No. 2, it's a lot of money we are talking about," Anzai said.
Reach Frank Cho at 525-8088 or at fcho@honoluluadvertiser.com.
