William J. Casey, as a private lawyer working for the Indonesian government, lobbied top officials of the Treasury Department in 1976 for multimillion-dollar changes in the U.S. tax law without registering as a foreign agent.
Casey, now Central Intelligence Agency director, has contended in past Senate inquiries that he performed limited legal services and attended "informational meetings" with Internal Revenue Service officials. But government documents obtained by The Washington Post indicate that Casey was advocating specific changes in tax policy outside established channels with top political appointees of the Ford administration, including Treasury Secretary William E. Simon.
The issue of whether Casey should have registered as a foreign agent is under Justice Department review following last fall's Senate Intelligence Committee inquiry, which concluded Casey was not unfit to serve as director of the CIA. Stanley Sporkin, CIA general counsel, has maintained that Casey was not required to register as a foreign agent.
Casey's representation of Indonesia, as documented by memoranda from the IRS and Treasury, is similar to the case of lawyers Clark M. Clifford and Paul Warnke, both former high government officials. They were required to register as foreign agents for Algeria in 1975 after Justice officials learned that the two had met in 1971 with U.S. government officials in an attempt to expedite Export-Import loans to Algeria.
In many instances, the Justice Department requires registration after the fact. In 1980, President Carter's brother, Billy, also was forced to register for his Libyan representation, which caused embarrassment to the administration.
A lawyer representing a client, including a foreign government, in an "established proceeding" such as an IRS tax ruling case is not required to register as a foreign agent, but is supposed to register if engaged in "political activity." The law defines that as any action intended to "persuade or in any other way influence any agency or official of the United States . . . with reference to formulating, adopting or changing the domestic or foreign policies of the United States . . . . "
Documents and interviews with former officials show that Casey met first with the treasury secretary and the assistant secretary for tax policy, a State Department official and later with IRS officials, urging the IRS to put aside its objections to the Indonesian production contracts with major American oil companies and the claims for tax credits for overseas taxation. In 1978 the IRS came around to the position favored by Indonesia.
On July 8, 1976, Casey met with Simon and his assistant secretary for tax policy, Charles M. Walker, to enlist their aid. Walker followed the meeting by writing a July 9, 1976, memorandum to then IRS Commissioner Donald C. Alexander urging him to expedite new tax rulings.
In an interview this week, Alexander said that Simon and Walker became involved in the foreign tax credit question. "I just thought the IRS ought to have called them the way we saw them without regard to political considerations."
Both Simon and Walker said recently that they do not recall the meeting, but they do not dispute what the government documents show.
Attorney General William French Smith, in the most recent policy statement on foreign agent registration, said in a report last fall that his department would require "complete public disclosure by persons acting for or in the interests of foreign principals where such activities are political in nature or border on the political."
Casey's argument that he was not required to register as a foreign agent centers on the exemption for attorneys performing legal services in what the law calls an "established agency proceeding."
IRS regulations specifically state that only U.S. taxpayers may apply for IRS rulings in an established agency proceeding, which requires a formal application and specific submissions. Casey made no such application and instead attempted to win a favorable policy change for Indonesia by going through top Treasury officials.
Justice spokesman John Russell said yesterday that private lawyers have an obligation to register as agents of foreign clients "when they attempt to influence or persuade government officials, except in established agency proceedings."
"In other words," Russell said, "arguments must be made in a proceeding rather than informally up on the Hill or over the breakfast table or in private meetings in the executive branch. It has to be some sort of forum, such as a court or a hearing."
Another knowledgeable Justice Department official who asked not to be named said that the circumstances described in this story would normally require registration as a foreign agent.
The Indonesian tax matter began in May, 1976, when major oil companies operating in Indonesia, including Texaco, Atlantic Richfield and Mobil, were put on notice that the IRS would no longer treat their "production sharing" arrangements with the Indonesian government as a foreign tax that could be deducted from U.S. taxes.
On June 1, 1976, one of Casey's partners at Rogers & Wells, Peter R. Fisher, wrote a letter to Treasury International Tax Counsel Robert J. Patrick Jr. to set up a meeting. "Rogers & Wells was retained by the government of Indonesia . . . to advise it on ways to overcome the Internal Revenue Service's objections to the procedure for collecting Indonesian taxes . . . , " the letter said.
On July 8, 1976, Casey met with Simon and Walker and delivered to them a seven-page memorandum. The memo stated that Casey and Rogers & Wells "have been instructed by the Indonesian government to use our best efforts . . . to develop a procedure for the prompt official publication of a statement to the effect that Indonesian income taxes. . . will be eligible for the foreign tax credit, either in the form of a public IRS revenue ruling or otherwise."
The next day, Walker wrote a memorandum to then IRS commissioner Alexander telling him that the Indonesian case could have "significant influence" on the foreign operations of the American oil industry. He expressed his opinion that the Indonesian government "with the advice of New York legal counsel" had adequately modified its oil contracts to get in line with IRS requirements and would be seeking reconsideration in the near future.
"I assume that," Walker concluded, "in view of the tremendous importance of this matter, the forthcoming ruling request will be expedited by your office."
On July 14, 1976, Casey and the other Rogers & Wells attorney, Fisher, met with Assistant IRS Commissioner John L. Withers and four other IRS officials for a 40-minute conference on the Indonesian case, according to a conference report in the IRS files. Withers informed Casey that the IRS "could not express any opinion as to whether or not a tax credit would be given until. . . a U.S. taxpayer requested a ruling from the service.
"Since neither Pertamina the Indonesian state oil company nor Indonesia met the later qualification, some other entity such as a U.S. oil company would have to approach the service before we could give a definitive answer on the tax credit."
The conference report, written by IRS technical branch attorney Steven Hannes, also noted that, "A memo which Casey had delivered earlier to Assistant Secretary Walker was distributed to IRS participants."
On July 29, Casey sent Withers seven pages of additional information about proposed changes in the Indonesian tax structure.
Former IRS officials said this week that none of these actions were part of an "established agency proceeding" since Casey's foreign client had no standing to request an IRS revenue ruling.
"That's not an established agency proceeding when he's going to the Treasury secretary," said former IRS commissioner Sheldon S. Cohen.
One IRS branch chief, John L. Crawford, said in an Aug. 17, 1976, internal note, "The memorandum submitted by Rogers & Wells on behalf of Pertamina . . . does not afford any basis for a conference with Pertamina's representatives." He added, "I think further conferences would be counter productive."
In a subsequent meeting requested by Casey on Aug. 30, another conference report shows that Withers repeated his point several times. "Mr. Withers began the conference by observing that a request for a ruling by a U.S. taxpayer . . . has not been received."
But the discussion continued, according to the conference report. "Mr. Casey indicated that in considering the oil companies' position it was important to Indonesia to determine what the service will require in the way of a creditable tax.
"Mr. Withers responded that the service must tell the taxpayers directly concerned whether the tax is creditable rather than going indirectly through Indonesia."
The report adds, "Mr. Casey suggested Indonesia should be afforded some status to negotiate with the service, citing the example of tax treaties which are negotiated by the foreign government although the provisions affect U.S. taxpayers."
But the IRS official reiterated to Casey that a revenue ruling involving a U.S. taxpayer was not similar to a treaty between two governments. Casey relented by saying that his law firm would "work with the oil companies to expedite submission of a ruling request."
By the end of August, the IRS had noted in its files that it had refused Rogers & Wells' request and continued to wait for a U.S. taxpayer to make a formal application to initiate an established agency proceeding.
The issue was carried over into the Carter administration where there were high-level discussions on whether top Treasury officials should get involved with the IRS decision-making process.
After considering whether to take action, Assistant Treasury Secretary C. Fred Bergsten told Secretary W. Michael Blumenthal in a Sept. 23, 1977, memo that, "There are strong arguments" against intervening in the IRS deliberations.
"It would put the U.S. government in the questionable position of politically intervening in the tax ruling process for the benefit of a foreign government," according to the memorandum.
Casey's work for Indonesia followed by six months his departure from the top post at the Export-Import Bank, which during his tenure had supported a multimillion-dollar lending program for technical development in Indonesia.
In 1977, a year after the firm began work for Indonesia, Rogers & Wells registered as a foreign agent because "the firm foresaw a possible need to move to an advocacy position with respect to the IRS," according to a letter supplied to the Senate committee. The firm's registration statement said the only partner working on the case was Peter Fisher.
Fisher described his activities as, "Legal representation before governmental departments or agencies of the United States in connection with obtaining United States foreign tax credit for Indonesian income taxes paid by United States oil companies."
On his registration form, Fisher was asked what political activities he might undertake as an agent for Indonesia. Fisher replied, "I may be called upon to present facts and arguments before appropriate government agencies or officials with respect to changes in Indonesian tax laws and practices and acceptance thereof by such agencies or officials."
In 1978, the IRS reinstated foreign tax credits in Indonesia.
Staff writer Charles R. Babcock contributed to this article.