The Islamic Post Blog

US Congress Puts International Tax Havens Under Fire by Khalida
May 10, 2009, 2:01 pm
Filed under: Latino/Caribe, May Volume I - 2009, National | Tags:

(IP) –At the recent Summit of the Americas, Caricom (Caribbean Community) Chairman, Prime Minister Dean Barrow of Belize, referred to financial services in the Caribbean as important “growth engines,” in response to the tax haven controversy that followed the G20 economic summit last month. The Organisation for Economic Co-operation and Development (OECD), which claims to work “with its 30 member countries and with others to develop sound policy frameworks for the governance of the world economy,” issued a report at the conclusion of the G20 conference outlining the progress of traditional tax havens towards transparency. The move was agreed upon by all attendees. While four of the countries were slow to comply with new regulations being initiated by the OECD –which would include sanctions for those not in agreement– eventually all alleged tax havens, including those nations in the Caribbean and others which are not a part of the G20, were put on a grey list to be monitored, and all sides claimed victory.
The US Congress however, is going forward with a bill that seeks to prevent US tax dollars from hiding in foreign banks in the first place. The Stop Tax Haven Abuse Act introduces “new enforcement tools,” according to the bill’s sponsor, Senator Carl Levin [Democrat-Michigan]. “They include new legal presumptions to overcome offshore secrecy barriers, special measures to combat persons who impede U.S. tax enforcement, treatment of offshore corporations as domestic corporations when controlled by U.S. persons, elimination of the offshore dividend tax loophole, greater disclosure of offshore transactions, and more,” Mr Levin announced in a statement.
The Senate Permanent Subcommittee on Investigations, chaired by Senator Levin, recently held two days of hearings and released a report that “broke through the wall of secrecy that normally surrounds banks located in tax haven jurisdictions.”
Regarding the tax haven investigation, Senator Levin seems to have started with Switzerland, but the investigation will not end there. The Subcommittee presented seven case histories of U.S. persons who had secretly stashed millions of dollars in accounts at LGT Bank, a private bank owned by the Liechtenstein royal family in Switzerland. “These case histories unfolded like spy novels, with secret meetings, hidden funds, shell corporations, and complex offshore transactions spanning the globe from the United States to Liechtenstein, Switzerland, the British Virgin Islands, Australia, and Hong Kong,” Levin states. He continues: “A former LGT employee, now in hiding for disclosing LGT client information, provided videotaped testimony during the hearing describing a long list of secrecy tricks and deceptive practices used by LGT to conceal client assets. They included using code names for LGT clients; requiring bankers to use outside pay phones to call clients to prevent those calls from being traced back to the bank; establishing offshore shell corporations which clients could use to route money into and out of their LGT accounts without incriminating wire transfers; and creating elaborate offshore structures involving foundations, trusts, and corporations to conceal client ownership of assets. In addition, four U.S. persons asserted their Fifth Amendment rights at the hearing and declined to answer questions about their LGT accounts.”
The Tax Justice Network, an international non-profit organization dedicated to fighting tax evasion, has estimated that wealthy individuals worldwide have stashed $11.5 trillion of their assets in offshore tax havens. Two experts, Joseph Guttentag and Professor Reuven Avi-Yonah, have estimated that U.S. individuals are using offshore tax schemes to avoid payment of $40 to $70 billion in taxes each year. Mr Levin is supported in his efforts by President Barack Obama, whose proposed budget is counting on the recovery of said billions of offshore tax dollars to assist in stabilizing the economy over time (Please see US government revenue chart on A6).
The US is becoming increasingly aggressive in the effort to shut down tax havens, and this even before the OECD agreements made after the G20 summit earlier this month. USA Today reported that the Swiss Bank UBS closed more than 14,000 accounts owned by US citizens following a court settlement over accusations it assisted its clients with tax evasion. Yet, the Swiss government has made it clear that by adopting the OECD Model Tax Convention, whereby Switzerland will henceforward share information “with other countries in individual cases where a specific and justified request has been made,” bank secrecy will not be put to rest. Pierre Mirabaud, chairman of the Swiss Bankers Association in Geneva accused the G20, of which Switzerland is not a member, of hypocrisy and hoped that Switzerland woud be treated as fairly as those tax havens which are territories of G20 nations, specifically Britain. Mr Mirabaud told the Bloomberg news agency: “I would only believe Mr. Brown [British Prime Minister Gordon Brown] is serious about addressing the question of transparency in offshore banking if he forces the real beneficial owners of any trust to be identified in all jurisdictions.”
But the US Department of Justice did just that, having served UBS almost a year ago with a “John Doe summons,” seeking the names of 19,000 U.S. clients with Swiss accounts hidden from the IRS. UBS said at the Subcommittee hearing in July that it was ready to cooperate. However, virtually none of the information requested by the John Doe summons has been turned over, primarily because the Swiss Government has taken the position that turning over this client account information would violate Swiss secrecy laws. In the deferred prosecution agreement, UBS agreed to contest the summons in court, but if it lost, to turn over the information to the United States or risk resumption of the criminal prosecution against the bank. The Department of Justice has asked the U.S. court that approved the summons to enforce it, and a trial to resolve the issue is now scheduled for July 2009, “one year after the initial request for the information,” according to Senator Levin. “The fact that the United States is having such a difficult time getting the client names, despite catching UBS red-handed and obtaining its admission of wrongdoing, shows how tough the offshore tax evasion problem is.”
Senator Levin also cites the surprisingly widespread use of tax havens by corporations with household names such as Microsoft, which was reported by the Government Accountability Office to have eight subsidiaries in tax haven countries: “In January 2009, Senator [Byron] Dorgan and I released a report by the Government Accounting Office (GAO) which shows that out of the 100 largest U.S. publicly traded corporations, 83 have subsidiaries in tax havens. Of the 100 largest federal contractors, 63 have tax haven subsidiaries. Using data from their corporate filings with the Securities and Exchange Commission, GAO listed the number of tax haven subsidiaries for each of these corporations. GAO determined, for example, that Morgan Stanley has 273 tax haven subsidiaries, while Citigroup has 427, with 90 in the Cayman Islands alone. News Corp. has 152, while Procter and Gamble has 83, Pfizer has 80, Oracle has 77, and Marathon Oil has 76. My Subcommittee is currently engaged in an effort to understand why so many of these corporations have so many tax haven affiliates. To do that we are going to have to battle secrecy laws in 50 different jurisdictions.”
Senator Levin seems up for the task.


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