In his speech yesterday, following the Treasury’s crack down on corporate tax inversions, Obama blamed “poorly designed” laws for allowing illicit money transfers worldwide. Since the speech came at a time when the entire world is still abuzz with the disclosure from the Panama Papers, Obama touched on that as well: “Tax avoidance is a big, global problem” he said on Tuesday, “a lot of it is legal, but that’s exactly the problem” because a lot of it is also illegal.
There is one major problem with that: of all the countries in the world, it is none other than the country of which Obama is president, the United States, that has become the world’s favorite offshore “tax haven” destination.
As Bloomberg, which first broke the story about Nevada’s use as a prominent tax haven early this year, writes, “Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money.”
Over the past several years, amid increased scrutiny by journalists, regulators and law enforcers, the global tax-haven landscape has shifted. In an effort to catch tax dodgers, almost 100 countries and other jurisdictions have agreed since 2014 to impose new disclosure requirements for bank accounts, trusts and some other investments held by international customers — standards issued by the Organization for Economic Cooperation and Development, a government-funded international policy group.
In short: while Obama is complaining about corporate tax avoidance and slamming Panama, he is encouraging it in the U.S.
Places like Switzerland and Bermuda are agreeing, at least in principle, to share bank account information with tax authorities in other countries. Only a handful of nations have declined to sign on. The most prominent is the U.S. The other one is, of course, Panama, and we just saw what happened there.
The latest reporting “underscores the secrecy in Panama,” said Stefanie Ostfeld, the acting head of the U.S. office of the anti-corruption group Global Witness. “What’s lesser known, is the U.S. is just as big a secrecy jurisdiction as so many of these Caribbean countries and Panama. We should not want to be the playground for the world’s dirty money, which is what we are right now.”
For Obama, however, it is important to not let facts get in the way of a good speech, or welcoming the dirty, laundered money of the world’s uber wealthy, be they criminals or not, as they transfer their wealth from Panama to Nevada, Wyoming and other tax sheltering destinations in the U.S.
To be sure, the US has taken steps to keep track of US assets abroad, but not of foreign assets in the US.
In 2010, Congress passed the Foreign Account Tax Compliance Act, or Fatca, as the U.S. Justice Department began prosecuting Swiss banks for enabling tax evasion. Fatca forces certain financial firms to disclose to the Internal Revenue Service any foreign accounts held by U.S. citizens.
Fatca doesn’t, however, bind banks to provide information on foreigners with U.S. accounts to regulators abroad. The U.S. has entered into agreements with some other countries requiring such exchange with foreign regulators, but tax planners say they are considered relatively easy to avoid.
That’s where the OECD came in, with its own international take on Fatca that the U.S. declined to sign.
Panama has been one country which has done everything in its power to delay and dilute its compliance with OECD regulations.
In a January interview, an official at Trident Trust Co., a big provider of offshore vehicles, said it was seeing a large number of accounts moving into Panama because of its weak commitment to the OECD regulations. “The Panama office was extremely overworked, because a lot of people are re-domiciling to Panama from BVI and Cayman,” said Alice Rokahr, a Trident official based in South Dakota. In late February, OECD officials said publicly that Panama had been “removed from the list of committed jurisdictions” that agreed to share information.
The latest coverage of shell companies created by a Panamanian law firm could give the OECD new ammunition to put pressure on the country to sign onto the information-sharing agreements, some tax experts said.
But while one can criticize Panama, and with cause, for enabling tax evasion, at least its leaders don’t pretend to be saints, who do precisely what they condemn. Far less can be said about Obama.
“The U.S. doesn’t follow a lot of the international standards, and because of its political power, it’s able to continue,” said Bruce Zagaris an attorney at Berliner Corcoran & Rowe LLP who specializes in international tax and money laundering regulations. “It’s basically the only country that can continue to do that. Others like Panama have tried, but Panama can’t punch as high as the U.S.“
And confirming just that, in a statement issued Monday by OECD secretary general Angel Gurria, the OECD said “Panama is the last major holdout that continues to allow funds to be hidden offshore from tax and law-enforcement authorities.”
The statement didn’t mention the U.S., which is the OECD’s largest funder.
And there it is: the US, simply because it is the biggest – and wealthiest – bully in the yard, can dispense morality all day long, but just don’t ask it to practice what it preaches.
Meanwhile, advisers around the world are increasingly using the U.S. resistance to the OECD’s standards as a marketing tool – attracting overseas money to U.S. state-level tax and secrecy havens like Nevada and South Dakota, potentially keeping it hidden from their home governments.
Advisors such as Rothschild, profiled initially by Bloomberg’s Jesse Drucker.
Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.
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For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. “is effectively the biggest tax haven in the world.” The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”
And that is all you need to know.
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Contributed by Tyler Durden of Zero Hedge.
On a long enough timeline the survival rate for everyone drops to zero.