Posted on: Saturday, May 17, 2003

Gasoline lawsuit deadline extended

By Sean Hao
Advertiser Staff Writer

The state has extended the deadline for deciding whether to sue ChevronTexaco Corp. for alleged tax evasion until mid-June as it awaits a final report from an outside law firm.

The deadline to accept an offer by Chicago-based law firm Winston & Strawn to sue the oil company was scheduled to expire Monday. However, after an oral report of the law firm's findings yesterday, the state attorney general's office opted to delay a decision until it receives a written version.

Hugh Jones, deputy attorney general for the state, said he could not reveal whether the law firm recommended pursuing a case against ChevronTexaco. That announcement should come within the next month, he said.

"We did hear their findings and recommendations and this office will determine a course of action," Jones said. "We hope that we won't need the whole 30 days to make a decision and make a statement."

At issue is whether Chevron and Texaco funneled profits through an offshore joint venture to avoid taxes during the past 30 or more years and whether they paid inflated prices for crude oil that could have led to higher gasoline prices in Hawai'i. The two companies, which have since merged to become ChevronTexaco, have denied the charges.

The attorney general's office has said it will sue ChevronTexaco if Winston & Strawn decides there's a case. However, it has extended the deadline to do so several times, citing the need to gather additional information. The firm would pursue the case on a contingency-fee basis, meaning the state would not be charged unless there is a recovery.

Allegations of tax evasion were raised last year in a report by two accounting professors, Jeffrey Gramlich and James Wheeler. The report accused ChevronTexaco of failing to pay $3.25 billion in taxes, including $536 million to the state of Hawai'i.

The Internal Revenue Service took Chevron to court on similar allegations in 1994, and Chevron settled that case for $675 million.

The professors argue that Chevron and Texaco purchased oil at inflated prices from the Indonesian government to avoid U.S. corporate income taxes and receive foreign tax credits, among other things.

In addition, Wheeler, a former University of Michigan professor, charged that the Indonesian government gave the companies free oil to offset taxes paid on the overstated value of oil purchased.

Wheeler viewed as a positive sign that the attorney general's office did not decide to kill the matter after hearing Winston & Strawn's findings.

"If the initial report had been nothing, they would have simply canceled it," he said.