Monday, May 7, 2012
The Senate’s Permanent Subcommittee on Investigations in 2008 estimated that at least $5 trillion to $7 trillion was sheltered in offshore jurisdictions like the British Virgin Islands, the Cayman Islands, Gibraltar, Bermuda and the Bahamas — not just by Americans, but by everyone. These jurisdictions have little or no income tax.
The favorable tax rates encourage corporations to avoid paying American taxes by structuring complicated international transactions, like Apple’s “Double Irish With a Dutch Sandwich,” recently described by The New York Times. But it’s not just the low tax rates that make these jurisdictions attractive to those following the rules. The secrecy of offshore jurisdictions allows some individuals and corporations to engage in outright tax fraud, costing America at least $40 billion each year.
And that secrecy makes offshore tax fraud almost impossible for law enforcement to detect. When I was the Manhattan district attorney, we learned of offshore accounts only through whistle-blowers, cooperators and serendipity.
Legislation shaped by Senators Carl Levin, Kent Conrad and Sheldon Whitehouse that would curb some of these tax abuses by giving the Treasury Department the muscle to respond when foreign governments hampered our tax enforcement was recently passed by the Senate, but awaits House action. Those reforms are long overdue but do not fully address the larger problem: financial secrecy laws in offshore jurisdictions.
The secrecy laws in these tax havens are at the root of serious crimes: fraud, money laundering and international terrorism. ...
What, then, can be done about all this? Plenty — if we act now. Nobody leaves their money offshore forever. The United States can direct its banks and their foreign subsidiaries not to engage in financial transactions in havens that have no transparency and no disclosure of the true parties of interest in financial transactions.
A bill has been proposed in the United States to prevent the use of shell corporations to hide the true ownership of assets owned here. This legislation would provide a model of openness for other nations to follow. Unfortunately, the legislation is bottled up in our own Congress. This should not be. America needs to set an example of financial accountability and insist that the world follow.
(Hat Tip: Ann Murphy.)