Published on Nov 7, 2017
There are plenty of excuses and embarrassment swirling among some of the world's wealthiest people and companies in the wake of the leaking of a massive trove of financial files. The 'Paradise Papers' have exposed where the richest are hiding their money and swerving around the tax system.
Technically, Apple products are inferior to IBM clones. Always has been.
As a Logical Designer/System Analyst in the 90's I did a 5 year stint in AT&Ts downtown Cincinnati IT department.
We had a district manager who replaced IBM clones with MACs. What a piece of shit. Hardly any work was accomplished for several years and hundreds of thousands of dollars wasted, until he replaced the MACs with IBM clones. What an idiot. This guy was a Looney tunes, for real.
In fact, the US is one of the largest recipients of illicit financial flows from developing countries—money often smuggled out by corrupt politicians, drug dealers, or everyday criminals…
Just as small countries tend to breed the political culture that allows corporate secrecy, sparsely populated US states have competed in a race to the bottom to attract corporate investment through lax disclosure requirements. The tiny state of Delaware, called an “on-shore tax haven” by critics, garners more than a quarter of its public revenue—just over a $1 billion—from its business registry.
This probably factors into the World Bank’s assessment of the US as one of the worst offenders (pdf) when it comes to corporate secrecy. In fact, a 2012 academic study reports that it is easier to form a shell company(pdf) in the US than it is in Panama—or indeed, anywhere else but Kenya. At the top of their list? Delaware and Nevada.
Also note that this story talks about “tax avoidance” which is legal, and not “tax evasion,” which is not.
By Ronen Palan, Professor of International Politics, City, University of London. Originally published at The Conversation; cross posted from MacroBusiness
The so-called Paradise Papers may sound familiar – leaked documents from a law firm that specialises in offshore services reveal how the global elite avoids paying taxes. Even the name has the same ring to it as last year’s Panama Papers expose. But the Paradise Papers are different, reflecting the complexity of the global offshore tax system.
Panama is generally considered among tax haven experts as one of the least reformed corners of the offshore world. International rules regarding tax evasion and avoidance are intended to help national governments to pursue their own offenders, but the Panama Papers revealed that the country was being used primarily by the business and political elites of countries like Russia, China and many more in Latin America and Asia; countries where the governments are closely linked to business and which are less likely to use tools provided by new international rules to pursue offenders. Hence, relatively few Americans or Europeans were caught in the Panama story. And Mossack Fonseca, the law firm at the centre of the leak has since been discredited.
The Paradise Papers reveal the goings on of the elites of the offshore world – this time in the supposedly highly-regulated havens of the Cayman Islands, Bermuda, Singapore and the like. All places that received a fairly clean bill of health during the OECD peer review process only a few years ago. The law firm at the centre of this new leak, Appleby, insists there is “no evidence of wrongdoing” in any of the revelations.
Nonetheless, the Paradise Papers will tell us a lot about the activities of business and political elites of well-regulated countries like the US and UK – implicating big multinationals such as Nike and Apple, and individuals including the British Queen.
Tax Avoidance is a Booming Industry
Clearly, jurisdictions such as the Caymans Islands and Bermuda that levy no income tax, capital gains tax, VAT, sales, wealth or corporate tax, still attract a great deal of businesses. Why, for instance, has the Duchy of Lancaster, the Queen’s private portfolio, invested in two offshore funds, in Cayman and Bermuda? After all, the Queen pays tax only voluntarily.
A more charitable interpretation is that any big investor who is seeking to diversify their portfolio would inevitably end up using offshore funds. The papers show that about £10m (US$13m) of the Queen’s private money was invested offshore – a very small percentage of her wealth. There is nothing illegal about this but the ethics of it have been questioned.
Practically, the entire wealth investment industry – the industry that invests for the rich and the wealthy of our world – operates through the offshore world. And the reason why is simple. Each fund or transaction, or aeroplane or yacht, or whatever that one cares to register in the Caymans or Bermuda, is not subject to tax. And it’s hidden from public view.
Secrecy Prevails Through Trusts
Despite a spate of new regulations, the Paradise Papers show that anyone who wishes to conceal their affairs from competitors, allies, governments or the public can still do so with great ease. And they can do so through the facilities of a “trust”, an archaic Anglo-Saxon instrument that serves as a foolproof shield from scrutiny.
We have learned, for instance, that Wilbur Ross, the US secretary of commerce, had commercial links to Vladimir Putin’s family, which operated through a system of linked trusts located in various offshore jurisdictions. I do not think that even the Mueller inquiry in the US into the Trump administration’s links with Russia could have pierced the veil of secrecy offered by offshore trusts.
But the leaked documents from law firm Appleby reveal that any complex business deals that would involve concealment and subterfuge would work their way through trusts. It is high time we do something about these trusts.
Highly Complex Tools Are Used
The Paradise Papers show how complex financial innovations such as the use of derivatives and financial swaps arrangements, can be used for tax avoidance. This is an area of avoidance that is normally not well understood and scantily studied.
New research colleagues and I are conducting, however, has found that cross-currency interest rate swaps are used pervasively in tax minimisation mechanisms. It is difficult to detect and involves a parent and subsidiary companies swapping a loan in one currency to another. This swaps the risks and the interest rate of the original currency for the subsidiary’s – a legitimate risk minimisation instrument. At the same time, this facilitates moving funds offshore to low tax jurisdictions.
4. The Law Needs to Change
Many professional service firms operate through offshore jurisdictions. They all claim to be highly professional, following not only the letter, but also the spirit of the law.
But if these firms are not directly liable for the activities of their clients, the offshore world will continue to thrive. These firms take advantage of regulatory loopholes to arbitrate between different rules and jurisdictions in order to minimise taxation. The question is for how long such practices are going to be considered legitimate.
The Paradise Papers reveal how little the world really knows about the level of tax avoidance that takes place. UK citizens, for instance, can legally invest in offshore funds and set up companies in those havens. But they must reveal these holdings to the tax man. We do not know whether those named in the papers did, and we do not know whether the tax authorities will do something about those who did not. We only know that a lot is going through offshore. The Paradise Papers show that, despite promises of the opposite, opacity is still pervasive in the offshore world.
Forget Panama: it’s easier to hide your money in the US than almost anywhere Creating a shell company in the US is easier than obtaining a library card. The term tax haven may evoke images of exotic locales, but Panama actually ranks as the 13th most attractive spot for hiding assets, while the US lies third. In the wake of the Panama Papers, the number of shell companies incorporate in the US could grow. Jana Kasperkevic. The Guardian. April 6, 2016.
Forget Panama: it’s easier to hide your money in the US than almost anywhere
One of the surprises about the Panama Papers – the largest leak from an offshore tax adviser in history – is how few Americans have so far been exposed. The reason? It may be because creating a shell company in the US is easier than obtaining a library card.
About 200 people with US addresses have so far been revealed as clients of Mossack Fonseca, the firm at the center of the Panama Papers leak. Compared with countries such as China, Switzerland, Russia and the United Kingdom, the number is small.
The anomaly may be because it’s so easy to create a vehicle to hide your money and your identity in the US that there’s no need to mess with Panama, according to Shruti Shah, vice-president of programs and operations at Transparency International, an anti-corruption organization.
“You don’t really have to go to Panama or other tax havens. They are not the only ones making it possible for corrupt officials and other criminals to launder their money. You can do it in every state in the US,” explained Shah.
“In every state in the US, you can incorporate an LLC – [a limited liability company] – or another legal entity and you don’t have to disclose who the beneficiary on it is. In fact, Delaware is so synonymous with anonymous companies and ghost corporations that it was named in Transparency International’s Unmask the Corrupt campaign as one of the most symbolic cases of corruption.”
The term tax haven usually evokes an image of some faraway place like Belize or the Cayman Islands. Yet in 2015, in a ranking of tax havens most attractive for those looking to hide assets, the US came in third – surpassing Cayman and Singapore. The two places that were even better suited as tax havens for the rich were Switzerland and Hong Kong, according to the Tax Justice Network that published the ranking. What was Panama’s ranking? It was 10 spots behind the US, at 13.
Welcome to Delaware
A while back, Shah sent her husband to return an overdue book she had borrowed from the library. When he returned, he told her her library card was expired and that to renew it she would have to bring her driver’s license showing her current address or a utility bill with her address.
“If I were to open a shell company, I wouldn’t require any of those things. I would actually need less information to open a shell company in the US than I would need to get a driver’s license or a library card,” pointed out Shah. US overtakes Caymans and Singapore as haven for assets of super-rich
Is this in every state or just some like Delaware where the majority of US companies are incorporated ? “No state in the US requires beneficial ownership information. So it’s practically everywhere,” explained Shah, who lives in Virginia. “Some states are easier than others. In some states it’s more money than others, because they also have tax-friendly laws.Delaware and Nevada and Wyoming are infamous – or famous, however you look at it – [for their tax laws]. Texas and Florida are equally easy.”
There is nothing illegal about setting up a shell company. US states are proud of their business-friendly policies. Delaware, for example, prides itself on being the incorporation capital of the US. “More than 1,000,000 business entities have made Delaware their legal home,” claimed the state’s Division of Corporations website. “More than 50% of all publicly-traded companies in the US including 64% of the Fortune 500 have chosen Delaware as their legal home.”
In the wake of the Panama Papers, the number of shell companies incorporated in the US could grow. Instead of stashing their cash in Belize, Panama or the Cayman Islands, the companies and individuals could turn to the US.
“They certainly could,” said Heather Lowe, director of government affairs at Global Financial Integrity. “Given the lack of action in the US to address this issue compared to, say, the European Union, it may seem like a safe bet right now.”
Shell companies have their uses; they can be used to buy land anonymously, for example, without tipping off the competition. To create an entity to protect future business rights, or a holding company for various businesses. They can also be used to, legally, make political contributions anonymously.
Just because some people or companies have chosen the state to form shell companies and hide assets does not mean the entire system should be to blame, argued Charles Elson, director of the John L Weinberg Center for Corporate Governance at the University of Delaware.
“Delaware really is not a tax haven. Delaware is a place where most US companies are incorporated, because of a very intelligent corporate law regime,” he said. “Obviously, some companies that are problematic come here, too, but that’s not the design of the system. That’s a collateral effect … If someone uses the corporation for nefarious purposes, I don’t think that’s the fault of the corporate statute, but of the individual.”
Shell companies, whether created abroad or at home, make it easy for people to hide assets and commit crimes, said Shah. For example, in the mid-2000s, former Louisiana congressman William Jefferson had created eight different shell companies to hide hundreds of thousands of dollars of bribes. Viktor Bout, an infamous arms trafficker known as the Merchant of Death, had at least a dozen shell companies incorporated in Delaware, Texas and Florida to cover up his weapons trafficking operation.
There is no reason, said Shah, why creating such shell companies should be easier than obtaining a library card. Her group Transparency International has called on the US Congress to pass the Incorporation Transparency and Law Enforcement Assistance Act introduced by congresswoman Carolyn Maloney and Senator Sheldon Whitehouse. If enacted, the bill would require states to collect, maintain and update information about beneficial ownership of all companies created in the US.
“Bipartisan legislation has been introduced in the House since 2008, but it has never seen the light of day. It’s never been enacted into law. Maybe now is the time,” said Shah.
Elson remains skeptical as to whether such a law would actually work. “I don’t know how fixing the beneficial ownership rule would fix this. If someone is devious enough to game the system in this way, they would work their way around any single regulatory change. These are very clever people,” he said. In order for any legislation to pass, the US business community would have to come out in support of it, pointed out Lowe.
“The US Chamber of Commerce has long opposed legislation to end anonymous companies, and they must reverse that position and begin to support honest and open business practices,” she said.##
For the elite, well to do, successful they have to worry about wiki leaks, Panama papers, paradise papers and whatever papers. This is how they shake down the rich and take away their wealth. Media assumes these are guilty and the media trial is over even before it begins. By the way how is that high school grad,
Snowden not squeaking anything from his penthouse in Moscow?
For the working poor it's another kind of harassment by the law enforcers