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As governor, Dean signed bill that aided offshore insurers

WASHINGTON -- As part of Howard Dean's effort to attract companies to set up so-called "captive" insurance businesses in Vermont, he signed legislation that enabled a Bermuda-based company to establish a Vermont branch, which industry analysts said at the time could provide a tax break for the parent firm.

Dean has criticized corporations that incorporate in Bermuda for tax reasons. Yesterday, in a speech prepared for delivery in New Hampshire, Dean said, "It's time to look behind the fiction that allows corporations to become citizens of places like Bermuda and avoid paying income taxes on their foreign income."

In May 1999, Dean signed a bill designed to help self-owned, or "captive," insurance companies that intended to remain offshore. The legislation, for example, allowed an offshore-based captive insurance company to set up a "branch" in Vermont as a way of complying with US labor laws. This occurred when the captive wanted to cover employee benefits, a new form of business for the captives. The branch was not in an actual building, but was an operation run by Vermont-based specialists in the insurance business.

The impact of the legislation was described this way in a 1999 publication called Best's Review -- Property/Casualty Edition: "Although a company has a property/casualty captive established offshore, it would take a tax hit under the US Employee Retirement Income Security Act for lumping the employee benefits in with the captive's business. By creating a branch captive in the United States -- in this case, in Vermont -- the company would be spared the tax penalty."

At the time, Vermont's chief of captive insurance, Leonard Crouse, was quoted as saying at a Bermuda conference, "Our branch captive law allows you to come to Vermont to write your ERISA business. It will be the next great thing in onshore captives." However, Crouse, in a telephone interview, said that so far only "one or two" such branches have been formed, and he said he was not familiar with any tax consequences.

Dean campaign spokesman Jay Carson defended the legislation, saying, "It was the Washington politicians that allowed these companies to go offshore in the first place. Governor Dean worked hard to bring at least part of these companies back to the United States and in so doing created record economic growth in Vermont." Carson stressed that the arrangement also had to be approved by the Department of Labor, which had to certify that the program was good for employees.

Dean's dealings with the captive insurance companies have become an issue in the presidential campaign because Dean, who frequently criticizes President Bush's corporate tax breaks, cut taxes on premiums paid to captive insurance companies in Vermont, starting in 1993. That attracted many companies to Vermont, including Enron Corp., which created a captive insurance firm called Gulf Company Ltd. in 1994.

Yesterday, state officials confirmed that the Enron captive was taken over by Vermont after Enron went into bankruptcy; it remains under state control.

While Enron was only one of 500 companies to set up a captive in Vermont, it has attracted attention in part because Dean himself frequently links Bush to Enron, saying the president gave tax breaks to "Ken Lay and the boys who ran Enron."

As it turns out, Enron's captive had to be taken over by Vermont officials when Enron went into bankruptcy. J. David Leslie, the Boston attorney who runs the firm as a "special deputy receiver" on behalf of the state of Vermont, said that his expenses are charged to the business and that no state tax revenues have been spent as a result of the state takeover. Leslie said that as of October Gulf had assets of $58 million and liabilities of $21 million. But he said that Enron owed money to Gulf and it was unclear whether Gulf would receive those commitments.

"The question is whether Enron can meet those obligations," said Leslie, of the firm Rackemann Sawyer and Brewster. "If it can't, then Gulf will have problems." In any event, the operation is in shut-down mode, with no new premiums being taken. Crouse said it was not unusual for the state to take over the business. "You have to," he said. "You have to protect it. The parent is bankrupt."

US Representative Richard A. Gephardt, Democrat of Missouri, has called on Dean to reveal whether he ever met with Enron officials and to release Enron documents.

Crouse, who has overseen Vermont's captive business for 12 years, said he met with the Enron officials and has no recollection of Dean being at that meeting.

Globe staff writer Sarah Schweitzer contributed to this report.

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