ExxonMobil chief executive Rex Tillerson speaks during the 2015 Oil and Money conference in London. President-elect Donald Trump has tapped Tillerson as his nominee for secretary of state. (Ben Stansall/AFP/Getty Images)

Rex Tillerson, President-elect Donald Trump’s nominee for secretary of state and the current chief executive of ExxonMobil, has surfaced in a corporate registration document leaked to journalists from the tax haven of the Bahamas. The document shows Tillerson served with U.S. and Russian executives as a director and officer of an Exxon subsidiary that operates a vast oil and gas reserve off the Russian coast.

The document does not indicate anything illegal or improper, and Tillerson's presence in the registry may not be particularly surprising given his high-ranking position at Exxon at the time. But it does offer a window into how multinational companies like ExxonMobil use complex webs of offshore companies to carry out their operations around the globe.

The practice of using offshore jurisdictions is both widespread and controversial. Critics charge that tax havens like the Bahamas facilitate illegal activity and drain state coffers by allowing companies to operate in anonymity and avoid paying taxes on their profits.

And given that both Tillerson and Trump have used offshore vehicles in their business dealings, critics of the industry say the incoming administration may be unlikely to take action they say is necessary to curb potential abuses.

The document comes from the Bahamas corporate registry, a database of offshore companies set up on the island that was leaked to the German newspaper Süddeutsche Zeitung. The newspaper shared the data from the registry with the International Consortium of Investigative Journalists and other news organizations, including The Washington Post. It contains the names of directors and owners of Bahamian companies, trusts and foundations, information that is typically inaccessible to the public.

The document indicates that Tillerson was appointed as director of a company called Exxon Neftegas Limited on Jan. 1, 1998, and as an officer on March 6, 2000. Tillerson is listed as board chairman, alongside 17 other officers with addresses in Houston, Moscow and Sakhalin, Russia.

Tillerson's long-standing ties to the political and business elite in Russia, forged during years of working in Russia and the Middle East on behalf of the multinational oil company, have sparked concern among some Republican lawmakers, including Sen. Lindsey O. Graham (R.-S.C.) and Sen. Marco Rubio (R.-Fla.).

The Exxon Neftegas project operates near Sakhalin Island, off the eastern coast of Russia. Russian state-owned oil company Rosneft, Japanese company Sakhalin Oil and Gas Development Co. and Indian state-owned oil company ONGC Videsh are all investors in the project, according to ExxonMobil.

Overall, the leaked documents contain more than 400 companies registered with “Exxon” or “ExxonMobil” in their names, evidence of the vast network of legal entities the oil giant uses to conduct its business.

In an emailed statement, Alan Jeffers, a spokesman for ExxonMobil Corp., said that the company has affiliates that are incorporated around the world. “Some entities are registered in the Bahamas for simplicity and predictability of the country’s laws governing incorporation. It is not done to reduce tax in the country where the company operates.”

Yet James Henry, a senior adviser to the Tax Justice Network and former chief economist of McKinsey & Co., says that operating in the Bahamas has precisely that effect. Henry says that Exxon may have been seeking a neutral location for a partnership with both Russian and U.S. directors. However, the Bahamas also offers strict financial secrecy and zero corporate taxes, which are the primary reasons to do business there, he says.

“We have no idea how much profit Exxon is booking in the Bahamas, because it’s not required to report that,” says Henry.

Exxon reports its income by region, not country, according to a spokesman.

Tillerson's directorship ended in 2001, when he was appointed senior vice president of ExxonMobil and no longer had direct responsibility for that operation, Jeffers said.

Heather Lowe, director of government affairs at Global Financial Integrity, says it’s not uncommon for large multinationals to have offshore subsidiaries to limit liability in case of an oil spill, for example, or to finance particular projects.

Tax havens are often used to allow investors from different countries to invest in specific projects without incurring taxes that might apply to their investment if it were located some place else, she says.

“For Exxon, having offshore vehicles allows them to keep funds cycling offshore, into and out of investments, projects, etc., without incurring the tax they would pay if they brought funds back to the U.S. and invested from the U.S.,” Lowe said.

The main problem, critics of the offshore industry say, is that the lack of regulation in these jurisdictions allows companies to operate in anonymity, which in turn can facilitate illegal behavior. As the Panama papers, a massive leak from a Panamanian-based law firm earlier this year, showed, companies may use shell companies to anonymously launder money, pay bribes, traffic in drugs and do other illicit activities, says Mark Hays, senior adviser at Global Witness, an organization that advocates for tax transparency.

“The bottom line is it’s relatively easy to set up totally artificial entities that have no real business activities or business purpose, that are just shell companies and trusts and partnerships, in places that are subject to very low taxes and very little regulatory scrutiny,” says Henry.

Neftegas has not been accused of any illegal activity. But according to Hays, the practice of using offshore subsidiaries to carry out illegal activities is “particularly bad in the oil and gas industry. There’s a pattern we see … government officials cut deals with major oil companies to access new, lucrative resources. Everyone says they are playing by the rules, but people soon discover missing revenues and the involvement of mysterious, no-name companies registered abroad. Eventually, investigators learn that [this] web of companies [was] part of a scheme to rip off the people of that country,” he said.

Global Witness alleges that ExxonMobil or its corporate predecessor Mobil have engaged in questionable transactions with the governments of oil-rich countries, including Nigeria, Kazakhstan, Equatorial Guinea and Angola, contributing to poverty, instability and human rights violations in those regions, Hays says, citing Global Witness investigations of the oil and gas industry.

In an emailed statement, ExxonMobil said that it adheres to United Nations guidelines for protecting human rights, as well as “applicable host country regulatory requirements and universally recognized principles.”

“We believe that understanding and addressing the interests of communities where we operate, and the potential impact of our operations on them, is critical to maintaining a sustainable business,” the statement said.

Hays notes that Exxon has fought transparency initiatives in the U.S. that would shed more light on such transactions, including lobbying through the American Petroleum Institute to delay the implementation of Section 1504 of the Dodd-Frank Act. The rule requires companies to disclose payments made to governments for the commercial development of oil, natural gas or minerals. API has argued that the rule requires companies to disclose sensitive information that could benefit their foreign competitors.

Tillerson is a member of the executive committee and a former chairman of the American Petroleum Institute.

Tax transparency advocates like Henry support other rules, including establishing so-called “country-by-country reporting” for the profits companies make in each global jurisdiction.

Henry explains that, in the U.S., laws require companies to pay taxes to the states in proportion to how much business they do there. So if a company earns most of its profits in California, it has to pay taxes there, and not in Delaware.

But the global system is not like that. Multinationals can save massive amounts of money by transferring profits made in one country to a corporate entity registered in a place like the Bahamas, where corporate taxes are zero. The Bahamas also traditionally has had strict corporate secrecy laws, which may allow companies to hide their real owners.

The Organization for Economic Co-operation and Development, an international organization that sets global tax standards, has supported the idea of country-by-country reporting. But the U.S. Treasury has opposed requiring all companies to share tax information in the past, instead favoring bilateral tax exchange agreements. Henry says he is not optimistic that Trump’s administration will support it.

The OECD is scheduled to meet next in Paris in June. Trump, who has been known to use offshore tax structures for his business in the past, will be faced with the decision of whether the U.S. Treasury should join the group's efforts to combat corporate tax dodging around the planet.

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