The Offshore Wrapper: a week in tax justice

End of anonymous companies in the U.S.?

The US congress looks like it may follow the European Parliament’s lead and approve legislation limiting anonymous shell companies.

A draft law to stop anonymous shell companies has started picking up interest from Senators. The proposal would force the disclosure of beneficial ownership by companies registered anywhere in the United States. The ICIJ reports that there is now renewed optimism that the measure may start moving through the legislature after it sat on a shelf gathering dust for five years.

An excellent article from Quartz looks at the issue of secret companies in the States. It is easy to see why controls are needed. Read more about the technical issues here.

If nothing else, it was revealed that Iran, yes Iran, owned and operated a skyscraper in Manhattan until last year! This audacious trick from the Iranian government was done with the help of a shell company based in Jersey, which is – apparently – definitely NOT a tax haven.

Our friends at Global Witness have just been fired up to kick up a mighty stink on this kind of thing.

The much too special relationship

The case of the Iranian skyscraper shows why public opinion in the US is turning increasingly hostile to tax havens …sorry, well regulated financial centres based in the remnants of the former British empire.

A few weeks ago Ben Judah in the New York Times wrote a scathing article about the City of London’s love of Russian money.

This week, TJN’s very own Nick Shaxson, writing in The American Interest, highlights a range of threats to global stability and US security hidden away in the City of London’s network of tax havens and secrecy jurisdictions (surely, well regulated FCs? ed.) around the world.

Rotten to the core?

That the UK has been such an aggressive promoter of tax havens… or rather transparent international financial centres should be of no surprise when we consider just how deeply embedded in the British establishment offshore has become.

Today the Bureau of Investigative Journalism revealed that a British Lord, a former Conservative Chief Whip no less, has been on the payroll of the Cayman Islands to lobby the British government and its parliament on their behalf. According to the Premier of the Cayman Islands Lord Blencathra, “has that capacity to open doors which I haven’t seen anyone, perhaps since [former Cayman Islands] Governor [Thomas] Russell, able to open in the UK,”

This is, I suppose, what happens if a country (the UK) fills one half of its legislature with unelected and unaccountable politicians.

Cambridge University is not very clever

It is perhaps worth thinking about the benefits the offshore financial system brings to the UK. Like for example, funding the education system.

Cambridge University has for years taken millions from Dimytro Firtash, a Ukrainian Oligarch who was a strong backer of ousted president Viktor Yanukovych. He has links, according to information contained in US diplomatic cables, to well-known Russian gangsters and one person wanted for “mass murder”.

Despite these apparent associations, Mr Firtash was admitted to Cambridge University’s prestigious guild of benefactors in a ceremony presided over by Prince Philip.

Yes, he may have made billions from a company that a US official described as “a serious source of corruption”, but that money is now helping the sons and daughters of the British elite to go on study trips to the Ukraine. That can only be a good thing, right?

(UPDATE: Britain’s Daily Mail has picked up on another angle on this story.  Firtash’s wife Lada (pictured) is revealed to also have been inducted into the Cambridge Guild of Benefactors, which doesn’t reflect too well on the University when it’s own ethical guidelines advise against accepting donations when there is a significant risk of reputational damage.)

Bean counters form human tax havens

Efforts from the OECD seems to be making a serious dent in the current system of profit shifting. Even countries such as Luxembourg are signing up to the new automatic information exchange standard, paving the way for tighter controls on international tax avoidance and evasion.

But the world’s tax planners are already dreaming up new ways around the system. The front runner seems to be offshoring your residency. Countries like the Bahamas are looking at ways in which they can sell residency to individuals so that they can benefit from more lenient “business friendly” rules there.

So instead of routing your profits though a company which is resident in the Bahamas, you do so through a person who is resident in the Bahamas. Even if that person never sets foot on the island.

A really good example of how this might work is provided by the world’s youngest billionaire Perenna Kei Hoi-ting, who seems to be a human tax avoidance scheme for her dad.

Perenna is the owner of Logan Property Holdings. Her father is a citizen of China where all offshore companies must be declared. Perenna who owns the family business is a citizen of St Kitts and Nevis and resident in Hong Kong. Despite her degree from the London School of Economics, Perenna has no say in the running of the company, allowing her father to keep control of the family business while avoiding China’s capital controls.

This week’s blogs

• Treasure Islands – now available in Spanish. Las Islas Del Tesor

• Swiss tax treaty policy thwarts new era of automatic information exchange. Old habits die hard.

• The UK Law Commission consultation on the fiduciary duties of investment intermediaries: Response from the Tax Justice Network. Noting that tax avoidance in companies is like refined sugar in the human body – empty financial calories with adverse long-term health effects.

• The March 2014 Taxcast – Russia, Ukraine, Londongrad. Interviews with authors Ben Judah, and Oliver Bullough.

• Cambridge University and the scandal of Ukrainian dirty money. Did they learn nothing from the London School of Economics?

• Secrecy jurisdictions already aiming at loopholes in OECD project. With Bahamas in the frame this time.

• A small but telling victory in London’s offshore housing crisis. By our very own George Turner, author of this Offshore Wrapper.

• Should Argentina sign a Double Tax Agreement with Switzerland? Er . . . no: at least not of this kind.
• The UK government believes in country by country reporting. More weasel words from tax haven central.

• Top U.S. senators urge extradition of Swiss bankers. The U.S. Department of Justice has been too soft.

• One Direction get tax justice. Or do they? The boy band joins arch-hypocrite Irish rocker Bono in being confused about what it means.

This week’s links

Luxembourg Signs Up to EU Savings-Tax Agreement, Ending Deadlock Bloomberg
Bettel: “With Austria, Luxembourg can go ahead and give the green light for the EU savings directive”. See also: Austria, Luxembourg Accept EU Bank-Secrecy Law The Wall Street Journal –Bloc Promises to Push Switzerland, Four Other Countries Into Signing Similar Deal

The world’s youngest billionaire appears to be a human tax dodge Quartz

Offshore Web Nets Chinese Giant in Italian Solar Scandal ICIJ

Dominique Strauss-Kahn, former IMF head, joins board of Rosneft-owned Russian bank The Telegraph
See also: Dominique Strauss-Kahn’s hedge fund is far from the first brash comeback in finance Quartz

Kazakhstan to combat capital flight offshore Business News Europe
“… a Kazakh deputy proposed the country should create its own offshore zone, in a bid to keep capital from leaving the country … He noted that a Russian plan for an offshore zone in the far east creates additional risk of capital flight, as there will be no restriction within the Customs Union.”

Treasury Sanctions Russian Officials, Members Of The Russian Leadership’s Inner Circle, And An Entity For Involvement In The Situation In Ukraine U.S. Department of the Treasury

Kenya plans tax breaks to lure textile firms Business Report

Canada – BVI tax treaty is now in force STEP
Treaty introduces “a very favourable tax regime for income remitted from BVI-resident companies to their Canadian parent”

UK Treasury backs global overhaul of tax rules for multinationals Financial Times

Argentine Official Meets FIFA’s Blatter on Soccer Tax Avoidance Bloomberg

Zimbabwe: Public executives in tax evasion scam SW Radio Africa

Lessons of a German Tax Cheat The New York Times
Comparing tax cheating culture in Germany and Greece.

Italy: Renzi vows crackdown on tax dodgers Gazetta del Sud