Task Force on Financial Integrity and Economic Development
by Linda Beale
Task Force on Financial Integrity and Economic Development–Levin Keynote
Michigan’s Carl Levin gave the keynote address at the Washington conference of the Task Force on Financial Integrity and Economic Development. (For information on the organization, visit its website at http://www.financialtaskforce.org. Levin’s remarks, and soon a YouTube of the conference, are available here.). His theme–offshore tax abuse–is described with spy-novel aplumb.
[W]hat’s been happening in the offshore tax haven world reads like the stuff of a novel. It involves billions of dollars in hidden assets, secret documents, clandestine meetings, and scheming in cities around the world. It involves conflict among some of the world’s richest nations. And in recent months, political events have caused a near earthquake in the offshore world that has shaken the marbled headquarters of some of the world’s richest private banks serving some of the world’s wealthiest people.
Levin is right-on as to the importance of this effort. As he says:
Tax evaders reap enormous benefits from civil society – they enjoy the security our military and law enforcement agencies provide; they invest and prosper thanks to the rule of law and sanctity of contract which our regulators and court system enforce; and they build their economic future on the financial, communications, and transportation infrastructure that taxpayers finance. What we ask in return is that all members of society pay that share of their income that they owe, so that governments can continue to protect fundamental rights and provide basic services. If that social contract breaks down and some refuse to pay their share, the effects on civil society are caustic. Ending offshore tax abuse is about more than money; it is about protecting the principles upon which our economic and political systems are built.
Levin provides a chronology of our progress in ferreting out, and acting to reduce, the offshore tax evasion schemes aided and abetted by multinational enterprises like Enron, KPMG, and the UBS banking conglomerate that the investigative committee thinks has cost the US about $100 billion a year in tax revenues:
1991: US banks offering private banking services to foreign heads of states that helped them hide illicit funds
2001: use of US banks by small offshore banks to move drug trafficking funds
2002: Enron’s use of phony offshore transactions to inflate revenues/minimize taxes (440 shell companies in the Caymans, among other entities used)
2003: tax scams developed and marketed by major accounting firm KPMG
2004: US banking assistance to Augusto Pinochet
2006: US taxpayers using tax havens to dodge US taxes
2008-9: LGT bank of Lichtenstein and UBS bank of Switzerland using banking secrecy laws to help wealthy US residents conceal assets and evade taxes
Part of the story is the way the US finally was able to start prosecuting some of the most egregious US tax evaders who had hidden their assets in this way. Two whistleblowers–one at the Lichtenstein bank and one at UBS–sacrificed their normal lives to reveal names and the entrenched and accepted customs of the banks of taking exhaustive steps to get around US laws to “service” wealthy clients’ tax evasion wants (secret codes, encrypted computers, pay phones, transfers of money in and out of accounts to block audit trails, secret visits to US clients, counter-surveillance training, smuggling diamonds in tubes of toothpaste).
Levin claims that the recent “wins” against Switzerland and Liechtenstein means that the good guys are “on the march” with “more progress in the last year than [in] the previous ten years combined.” The theme is that the OECD model agreement on tax information sharing will essentially end the use of bank secrecy laws for tax evasion.
(I hope so, though I remain unconvinced, without further changes. Even if the Swiss expand the exception from “tax fraud” to “tax evasion”, it still appears that far too much must be known by the US before it can seek specific account information from the Swiss, when the secrecy of the Swiss information will preevent the US from having enough information to seek more information. We’ll have to see as the facts come out. Even Levin admitted that: “the model agreement has traditionally been interpreted as requiring a country to supply information only when a requesting jurisdction has the name of a specific, suspect taxpayer. Most governments take the psotion that if the requesting jursidction doesn’t have the taxpayer’s name, no information can be shared, even if the bank secrecy laws make obtaining that taxpayer’s name difficult or impossible. That has to change.” (emphasis added).)
As Levin notes:
Of course, the battle to end offshore tax abuse is far from over. And I am concerned that in our spy story, the good guys may declare victory and relax before the villains are vanquished. We need to take action now to ensure we get a happy ending.
One of the actions recommended seems like a great idea, if countries only have the willpower to do it:
…having all G-20 countries adopt rules that require their financial institutions from doing business with an offending bank or jurisdiction-, thus essentially locking them out of the financial system of the G-20 countries.
Levin urges the passage of the “Stop Tax Haven Abuse Act S 506”. (I’ve commented on it before.) Many of the provisions should clearly be passed because they represent workable measures to combat offshre tax abuse, such as taking steps against the banks or jurisdictions, heightening reporting requirements, expanding the statute of limitations so there is more time to track the money, and toughening penalties.
Levin also argued for the “Incoporation Transparency and Law Enforcement Assistance Act” S 569, which would require reporting of beneficial ownership when corporations and limited liabilities companies are created in the United States. As he notes,
“[t]his corporate secrecy frustrates law enforcement … and undermines U.S. efforts to persuade offshore jurisdictions to identify the beneficial owners of the companies they form.”