Awash In Profits, Exxon Extracting Every Penny From Its Franchisees

Every time Sohaila Rezazadeh rings up a sale at her Exxon station on Chain Bridge Road in Oakton, her cash register sends the information to Exxon Mobil's central computers. If she raises the price of gasoline a couple of pennies, chances are that Exxon will raise the wholesale price she pays by the same amount.

Through a password-protected Web portal, Exxon notifies Rezazadeh of wholesale price changes daily. That way the oil giant, which is earning about $3.3 billion a month, fine-tunes the pump prices at the franchise Rezazadeh has owned for 12 years.

Now, however, Rezazadeh says she cannot stay in business. Credit-card fees are eating her profit margins. Exxon, which owns the station land, last week handed Rezazadeh a new lease raising her rent about 30 percent over the next three years. She stuck a copy on the window of her station to show customers who are angry about soaring pump prices. Rezazadeh has told Exxon that she cannot make money with the rent that high. Her territory manager's reply, she said, was simple: When you go, leave us the keys.

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10 Things to Remember About

Memorial Day is more than just a three-day weekend and a chance to get the year’s first sunburn. Here’s a handy 10-pack of facts to give the holiday some perspective.

1. It started with the Civil War

Memorial Day was a response to the unprecedented carnage of the Civil War, in which some 620,000 soldiers on both sides died. The loss of life and its effect on communities throughout the North and South led to spontaneous commemorations of the dead:

• In 1864, women from Boalsburg, Pa., put flowers on the graves of their dead from the just-fought Battle of Gettysburg. The next year, a group of women decorated the graves of soldiers buried in a Vicksburg, Miss., cemetery.

• In April 1866, women from Columbus, Miss., laid flowers on the graves of both Union and Confederate soldiers. It was recognized at the time as an act of healing sectional wounds. In the same month, up in Carbondale, Ill., 219 Civil War veterans marched through town in memory of the fallen to Woodlawn Cemetery, where Union hero Maj. Gen. John A. Logan delivered the principal address. The ceremony gave Carbondale its claim to the first organized, community-wide Memorial Day observance.

• Waterloo, N.Y., began holding an annual community service on May 5, 1866. Although many towns claimed the title, it was Waterloo that won congressional recognition as the “birthplace of Memorial Day.”

2. General Logan made it official

Gen. Logan, the speaker at the Carbondale gathering, also was commander of the Grand Army of the Republic, an organization of Union veterans. On May 5, 1868, he issued General Orders No. 11, which set aside May 30, 1868, “for the purpose of strewing with flowers, or otherwise decorating the graves of comrades who died in defense of their country during the late rebellion….”

The orders expressed hope that the observance would be “kept up from year to year while a survivor of the war remains to honor the memory of his departed comrades.”

3. It was first known as Decoration Day

From the practice of decorating graves with flowers, wreaths and flags, the holiday was long known as Decoration Day. The name Memorial Day goes back to 1882, but the older name didn’t disappear until after World War II. Federal law declared “Memorial Day” the official name in 1967.

4. The holiday is a franchise

Calling Memorial Day a “national holiday” is a bit of a misnomer. While there are 11 “federal holidays” created by Congress—including Memorial Day—they apply only to Federal employees and the District of Columbia. Federal Memorial Day, established in 1888, allowed Civil War veterans, many of whom were drawing a government paycheck, to honor their fallen comrades with out being docked a day’s pay.

For the rest of us, our holidays were enacted state by state. New York was the first state to designate Memorial Day a legal holiday, in 1873. Most Northern states had followed suit by the 1890s. The states of the former Confederacy were unenthusiastic about a holiday memorializing those who, in Gen. Logan’s words, “united to suppress the late rebellion.” The South didn’t adopt the May 30 Memorial Day until after World War I, by which time its purpose had been broadened to include those who died in all the country’s wars.

In 1971, the Monday Holiday Law shifted Memorial Day from May 30, to the last Monday of the month.

5. It was James Garfield’s finest hour—or maybe hour-and-a-half

On May 30, 1868, President Ulysses S. Grant presided over the first Memorial Day ceremony at Arlington National Cemetery—which, until 1864, was Confederate Gen. Robert E. Lee’s plantation.

Some 5,000 people attended on a spring day which, The New York Times reported, was “somewhat too warm for comfort.” The principal speaker was James A. Garfield, a Civil War general, Republican congressman from Ohio and future president.

“I am oppressed with a sense of the impropriety of uttering words on this occasion,” Garfield began, and then continued to utter them. “If silence is ever golden, it must be beside the graves of fifteen-thousand men, whose lives were more significant than speech, and whose death was a poem the music of which can never be sung.” It went on like that for pages and pages.

As the songs, speeches and sermons ended, the participants helped to decorate the graves of the Union and Confederate soldiers buried in the cemetery.

6. God knows, not even the Unknown Soldier can avoid media scrutiny these days

“Here rests in honored glory an American soldier known but to God.” That is the inscription on the Tomb of the Unknowns, established at Arlington National Cemetery to inter the remains of the first Unknown Soldier, a World War I fighter, on Nov. 11, 1921. Unknown soldiers from World War II and the Korean War subsequently were interred in the tomb on Memorial Day 1958.

An emotional President Ronald Reagan presided over the interment of six bones, the remains of an unidentified Vietnam War soldier, on Nov. 28, 1984. Fourteen years later, those remains were disinterred, no longer unknown. Spurred by an investigation by CBS News, the defense department removed the remains from the Tomb of the Unknowns for DNA testing.

The once-unknown fighter was Air Force pilot Lt. Michael Joseph Blassie, whose jet crashed in South Vietnam in 1972. “The CBS investigation suggested that the military review board that had changed the designation on Lt. Blassie’s remains to ‘unknown’ did so under pressure from veterans’ groups to honor a casualty from the Vietnam War,” The New York Times reported in 1998.

Lt. Blassie was reburied near his hometown of St. Louis. His crypt at Arlington remains permanently empty. [Image courtesy of VisitingDC.com.]

7. Vietnam vets go whole hog

On Memorial Day weekend in 1988, 2,500 motorcyclists rode into Washington, D.C., for the first Rolling Thunder rally to draw attention to Vietnam War soldiers still missing in action or prisoners of war. By 2002, the numbers had swelled to 300,000 bikers, many of them veterans. There may have been a half-million participants in 2005 in what organizers bluntly call “a demonstration—not a parade.”

A national veterans rights group, Rolling Thunder takes its name from the B-52 carpet-bombing runs during the war in Vietnam. Rolling Thunder XXI (and you thought only Super Bowls and Rocky movies used Roman numerals) is Sunday, May 25. [Image courtesy of WhiteHouse.gov.]

8. Memorial Day has its customs

General Orders No. 11 stated that “in this observance no form of ceremony is prescribed,” but over time several customs and symbols became associated with the holiday.

It is customary on Memorial Day to fly the flag at half staff until noon, and then raise it to the top of the staff until sunset.

Taps, the 24-note bugle call, is played at all military funerals and memorial services. It originated in 1862 when Union Gen. Dan Butterfield “grew tired of the ‘lights out’ call sounded at the end of each day,” according to The Washington Post. Together with the brigade bugler, Butterfield made some changes to the tune.

Not long after, the melody was used at a burial for the first time, when a battery commander ordered it played in lieu of the customary three rifle volleys over the grave. The battery was so close to enemy lines, the commander was worried the shots would spark renewed fighting.

The World War I poem “In Flanders Fields,” by John McCrea, inspired the Memorial Day custom of wearing red artificial poppies. In 1915, a Georgia teacher and volunteer war worker named Moina Michael began a campaign to make the poppy a symbol of tribute to veterans and for “keeping the faith with all who died.” The sale of poppies has supported the work of the Veterans of Foreign Wars.

9. There is still a gray Memorial Day

Several Southern states continue to set aside a day for honoring the Confederate dead, which is usually called Confederate Memorial Day: Alabama: fourth Monday in April; Georgia: April 26; Louisiana: June 3; Mississippi: last Monday in April; North Carolina: May 10; South Carolina: May 10; Tennessee (Confederate Decoration Day): June 3; Texas (Confederate Heroes Day): January 19; Virginia: last Monday in May.

10. Each Memorial Day is a little different

No question that Memorial Day is a solemn event. Still, don’t feel too guilty about doing something frivolous, like having barbecue, over the weekend. After all, you weren’t the one who instituted the Indianapolis 500 on May 30, 1911. That credit goes to Indianapolis businessman Carl Fisher. The winning driver that day was Ray Harroun, who averaged 74.6 mph and completed the race in 6 hours and 42 minutes.

Gravitas returned on May 30, 1922, when the Lincoln Memorial was dedicated. Supreme Court chief justice (and former president) William Howard Taft dedicated the monument before a crowd of 50,000 people, segregated by race, and which included a row of Union and Confederate veterans. Also attending was Lincoln’s surviving son, Robert Todd Lincoln.

And in 2000, Congress established a National Moment of Remembrance, which asks Americans to pause for one minute at 3pm in an act of national unity. The time was chosen because 3pm “is the time when most Americans are enjoying their freedoms on the national holiday.”

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The New Global Hunt for Tax Cheats

By forming multinational investigative teams, the IRS and other tax collectors are cracking down on evaders and giving new meaning to globalization

German Chancellor Angela Merkel and the Prime Minister of Liechtenstein Otmar Hasler give a joint press conference at the Chancellory in Berlin on February 20, 2008.

Government authorities from Australia to the U.S. are hunting big game together. Their prey? Wealthy tax evaders—as well as the asset managers, banks, and accountants who help prosperous people conceal cash in offshore bank accounts. For decades, globalization has afforded an edge to tax cheats. Now it's working for the tax cops, too.

Buoyed by new multinational investigative teams, agreements with banks to open once-secret records, tougher penalties for cheats and third parties, and a thirst for billions of dollars in recoverable revenue, the new globe-spanning tax man has got the world's mega-rich worried they could run afoul of the mounting crackdown.

With so much money at stake, it's no wonder the U.S. Internal Revenue Service, Germany's Bundesministerium der Finanzen, Britain's Her Majesty's Revenue & Customs, and other international colleagues are eager to nab wealthy tax evaders. Almost $6 trillion is estimated to be hidden from tax authorities across the globe—Germany's central bank suggests $775 billion in German assets alone have been secreted out of the country. In the U.S., the IRS reckons $295 billion of potential tax revenue goes uncollected—much of it because of underreported income. With governmental budgets strained everywhere, leaders are eager to mop up those missing payments.

A Collaborative Effort

To close this "tax gap," U.S. investigators and their comrades overseas are cooperating as never before. Since the September 11 terrorist attacks, tracking money movements has become a priority. In response, law enforcement and banks have started to share more information about possible tax evaders. Governments also realize they have a lot to gain from stiffer penalties that return more money to underfilled coffers.

"There's a lot of offshore tax evasion, so governments are trying to find tools to combat that," says Grace Perez-Navarro, deputy director of tax policy and administration at the Paris-based Organisation for Economic Co-operation & Development (OECD). "Governments realized there was greater value in working multilaterally."

Cross-border collaboration has become a buzzword in global law enforcement circles. Under an OECD-negotiated treaty, 19 countries, including states as diverse as the U.S., Italy, and Azerbaijan now can prosecute tax evaders within their jurisdictions on behalf of other signatory countries. The European Union passed a similar law in 2000, while Brazil, India, and South Africa began cooperating with each other to identify suspect transactions in 2006. Their targets typically conceal assets in the roughly 40 nations generally seen as tax havens, which are analyzed routinely by international organizations such as the OECD and the International Monetary Fund.

The IRS Joins Forces

These days, an investigator following a lead need not even cross a border for help from his international colleagues: He or she merely has to walk down the hallway. Since 2004 tax shelter sleuths from five countries—the U.S., Britain, Australia, Japan, and Canada—have shared work space, tactics, and information in a joint office at IRS headquarters in Washington. The success of the operation led to its expansion last year, including the opening of a London-based outpost at Her Majesty's Revenue & Customs.

The physical setup of this so-called Joint International Tax Shelter Information Centre reflects the sensitivity of the work. Each member of the unit—which is physically separated from the rest of the IRS—has a separate, closed office, allowing for confidential communication with counterparts back home, as well as discreet one-on-one conversations with local colleagues and the IRS. "The office space is configured in a manner that reflects the critical need to protect the privacy of taxpayer information," according to an IRS spokesman.

The IRS argues that such cooperation is essential in a world of globalized money flows. "Cross-border migration of capital and people has made this a more integrated world, and the IRS is working closely with other national tax administrators to ensure that we have a global view of our work," says the top tax official in the U.S., IRS Commissioner Douglas Shulman. This close work with other tax authorities, he adds, has allowed the IRS and its equivalents in other nations to achieve "a new level of cooperation in identifying, developing, and sharing leads on abusive tax transactions and schemes."

Such cooperation will only increase as governments clamp down on tax evasion, says Daniel Feingold, senior partner at Britain-based global tax consultancy Strategic Tax Planning. "There's a definite push for this sort of thing," he says.

Squeezing Tax Havens

All of this has put the squeeze on tax havens such as Liechtenstein and Andorra that have long-held traditions and laws supporting no-questions-asked banking for wealthy clients. "The number of countries safe for this activity is dwindling," says Beverly Hills-based tax lawyer Edward Robbins Jr., a former assistant U.S. attorney who oversaw tax prosecutions in California. "There aren't that many left, frankly."

For decades, banks in places such as Switzerland have flourished by offering seemingly ideal havens from the tax man. Switzerland's code of silence, for instance, goes back at least 200 years. And during World War II, Nazis and Jews alike made use of Swiss bankers' discretion. Since then so have corporations and non-governmental organizations—as well as drug traffickers and corrupt dictators.

Yet even this Alpine paradise has conceded to mounting international pressure (BusinessWeek.com, 5/21/08). Most major Swiss banks have signed up with the U.S. to be "qualified intermediaries." The system gives the IRS access to any account containing U.S. securities and requires the filing of tax and other forms with the U.S. that identify clients and balances—not exactly the image of tight-lipped discretion portrayed in movies such as The Spanish Prisoner and The Bourne Identity. Even the Swiss government admits to a disconnect between tradition and current reality. "Swiss banking secrecy is in no way absolute," cautions the Swiss embassy's Web site.

Often under pressure, other tax havens have followed suit. Agreements with traditional ports-of-call for evaders like Malta and Bermuda have aided the IRS and its international counterparts. Now tax collectors don't even have to pick their way through complicated avoidance schemes: They can make a case against alleged tax cheats simply by catching missing or falsified paperwork.

Elaborate Web

Here's how it works. For years, a bank client with any kind of interest in an overseas account valued at more than $10,000 has had to file a special form with the IRS disclosing that fact. But to avoid taxation, he might not file the form, or might underreport the value of the account on his tax return. More deviously, he might conceal transactions in an elaborate web of trusts and holding companies. Now, thanks to more international sharing of data, the IRS may find out about the account anyway—from the bank itself.

The recent high-profile indictment of former UBS (UBS) banker Brad Birkenfeld shows just how tough the authorities are getting. Birkenfeld's wealthy client, Igor Olenicoff, has pleaded guilty to filing false tax returns and agreed to pay $52 million in back taxes. Both Olenicoff and Birkenfeld, who was born in Boston and lives in Switzerland, are believed to be cooperating in a continuing investigation that began with the discovery of $200 million allegedly concealed in European tax havens on behalf of Olenicoff, a Russian émigré-turned-California real estate developer.

As a result of that probe, the extended arm of U.S. law may reach not just other clients of Birkenfeld (and those of an alleged collaborator in Liechtenstein named Mario Staggl, who specializes in the intricacies of tax havens and trusts) but also other employees of UBS. "This is not an isolated incident," says David Schwedel, a Florida entrepreneur who is now an investment partner of Birkenfeld's. "He won't be the last banker called in for questioning. There will be a lot of bankers called into this. They're going after others at UBS and any U.S. individuals involved with the bank."

Alerted About the Risks

Kevin Packman, a Miami lawyer who represents taxpayers running afoul of the IRS, says he's amazed that even sophisticated CPAs with major corporate and individual clients seem unaware of the international push against money held offshore. Tax lawyers around the world tell of clients—often expatriates—who are becoming increasingly worried about being ensnared in the tightening net, thanks to publicity surrounding tax avoidance test cases in Europe and the U.S.

One lawyer tells of trying to alert a client in Argentina about the risks of failing to disclose information to authorities in the client's home country. Even so, the client persisted in wanting to keep income under wraps. But tax lawyers and wealth managers from Basel to Boston say the risks of doing so are rising. "It's obvious that there's a growing intolerance of tax avoidance in the Western world," says Ted Wilson, a senior consultant at Scorpio Partnership, a London-based strategic consultancy to those who advise wealthy clients.

Of course, when the cat is in Zurich or Malta, the mice will find other havens. Asset managers, tax lawyers, and investigators tell BusinessWeek that wealthy evaders are taking a closer look at new frontiers for concealment. One such nation is the Republic of Vanuatu, a tiny, tax-free South Pacific archipelago 1,000 miles from Australia. Local officials even promote their tax haven status to potential clients. "Attractions for the foreign investor" include "extensive secrecy protections," according to a Vanuatu business and taxation guide.

Wealthy individuals looking to evade taxes likely will always find ways to circumvent the law. Yet as enforcement finds new ways to share information, the number of prosecutions is expected to rise. That has put pressure on well-known tax havens, such as Liechtenstein, either to shape up or face the full brunt of global tax authorities. In fact, there are signs things are already changing. Says Strategic Tax Planning's Feingold: These days, "among experienced practitioners, no one would ever use Liechtenstein."

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