The Leaseback Scam – Australia’s Enron
In August 2003, scandal visited City Hall. A now defunct company named Allco Finance (which stands for Australian Land Lease Corporation — with ties to Belgium and the Caymans) tried to purchase tax ownership of your $255 million Sewer Treatment plant. After a lengthy struggle, the proposal was defeated, but it would have been one of the costliest mistakes in city history had it passed.
The company who proposed this contract is now out of business.
Read about their Enron-style collapse.
There is nothing like curling up in front of a roaring fireplace on a cold winter’s night with a copy of Leaseback (394 pages long with 47 pages of definitions).
It would feed a fire for three hours.
It was scandalous. It was fraudulent. It was 21st Century Snake Oil. It involved two entities in the Cayman Islands, and a bank in Belgium. It was blasted by the Chairman and Vice Chairman of the U.S. Senate Finance Committee.
There were several different council meetings regarding this disastrous contract. [See official minutes: 8/26/2003 (p.7), 10/01/2003 (p.8) & 10/06/2003 (p.37)]. In addition, the public was shut out of the discussion by voting to go behind closed doors to discuss the contract. [See official minutes: 9/15/2003 (p.4) and video (about 1 hour and 2 minutes into the meeting].
Check out the minutes and video for the 8/26/2003 Special Council meeting. The majority of the council was ready to approve it sight unseen. I offered an amendment which required the contract be released to the council and the community. My amendment forced this disastrous contract into the sunlight, and it all went downhill from there.
Something for nothing (8/28/2003)
Council rejects plan to lease wastewater plant (9/16/2003)
On 9/15/2003, Alderman Ray Hadley and I asked for an explanation of the Cayman Islands clauses. The Council decided to go behind closed doors to discuss the issue. See minutes (p.4) and video (about 1 hr; 5 minutes into the meeting). After the executive session, the council voted unanimously to defeat it.
And then it came back.
Alderman opposes leaseback proposal (10/02/2003)
U.S. Senate Finance Committee hearing on 10/21/2003
Some of the opponents of the Leaseback testified from behind privacy screens with voice distorters and armed guards. That’s how serious this was. U.S. Senator Grassley from Iowa and Senator Baucus from Montana are from opposite political parties, and they joined together to blast these transactions. U.S. Senator Grassley called it “good, old-fashioned tax fraud”.
Leaseback proposal too good to be true (10/25/2003)
Read about Allco’s last minute appeal asking the council to support the transaction (11/14/2003)
City losing opportunity (11/15/2003)
Leaseback Defeated (11/17/2003)
Attached are the minutes and video from the meeting where the Leaseback was finally defeated. It was a great debate and the stakes were high. Even after the congressional hearings had exposed this transaction as a scam, there was still resistance to defeating the proposal. Retired Circuit Judge Roland Grosshans said he believed that a “pervert” wrote the contract, and that it didn’t make sense to do this for the Belgians since they still hadn’t said thank you for liberation in during WWII. (The veterans in the audience cheered).
Rapid City rejects lease/leaseback deal (11/18/2003)
Attached is the Rapid City Journal’s story on the defeat of the leaseback.
Bill Harlan: Getting through a tax-lease contract (1/24/2004)
Bill Harlan with the Rapid City Journal correctly pointed out that the Leaseback was more complicated than quantum physics.
New York CEO blasts city (1/24/2004)
This guy was mad because some public officials take their jobs seriously and read the fine print.
Repeal law on facility leasebacks (2/03/2004)
Lease-leaseback law repeal wins approval (2/24/2004)
The New Threat from Wall Street – Wall St. vs. America (11/19/2009)
BusinessWeek’s Ben Levisohn and Jessica Silver-Greenberg say that taxpayers are taking another hit as strapped local governments fork over billions in fees on investments gone bad.
A court ruling on April 15, 2011 underscores the serious consequences of these scams to the American Taxpayer.
On 5/15/2012, Reuters reports that the IRS won a $190m tax case against Hewlett Packard for trying to claim massive tax deductions a tax shelter similiar to the one that Rapid City was asked to engage in.