Jack Blum is a US attorney who has specialised in tackling offshore abuse for many years. He can fairly claim to have done more to expose BCCI than anyone else; there are few investigations of offshore in the USA he has not participated in. There's good reason: his apparent understated manner hies an enormous intellect, a mass of knowledge and a steely determination to counter abuse. It was privilege to debate on his side in Miami in April this year.
Jack testified before the Senate Finance Committee investigation into offshore activity in Cayman last week. He was in fine form. His full testimony is here but I feel it so important I'm going to highlight some things he said. Take this for starters:
Offshore tax evasion is a serious and growing problem. In a world of freely moving capital, instant money transfers, and instant global communication, it is possible to create complex international structures with the click of a mouse. As the ability to move capital has speeded up the ability of tax collectors and law enforcement has not kept pace. The regulators are in the position of police on a freeway without a speed limit using bicycles to stop Ferraris.
That's why we have to change the environment, not just the rules. Jack agrees; as he put it:
The current code and current IRS policy puts form over substance. That stance is crippling. The offshore jurisdictions sell form. They will create sham entities energetically and in endless variety. I have seen cases where an offshore corporation was owned by an annuity insurance policy the beneficiary of which was an offshore trust. Each of the entities was in a different jurisdiction and each lacked any substance. The problem was that the burden was on IRS to prove they were shams.
I believe that burden must be shifted. Because of the scope of the sham problem, if a taxpayer wants to argue that the property or the income belong to a BVI corporation owned by a Nevis trust with a bank account in Anguilla, let him prove that the corporation has a real management and a real board of directors that actively runs the business. Let him prove that the trustee exercises real fiduciary responsibility and that he, not the owner of the property makes the key decisions.
Or this:
The tax avoiders and tax cheats see national borders as their friends and freely use secrecy jurisdictions and jurisdictions with lax trust, corporation and insurance laws to create structures that hide money from tax collectors and law enforcement.
Some jurisdictions have developed specialities in providing these products. The British Virgin Islands, for example, is the place to go for quick, cheap, anonymous incorporation. It has more than 500,000 shell companies. It has also developed a new trust "product" that allows a "trust" to be the owner of a corporation without the trustee having any knowledge about the operation of the corporation. Under U.S. law this is not a "trust."
It is important to understand that the structures are mere pieces of paper with no commercial reality. They are backed by formalities that allow them to pass paper checklists in other jurisdictions including the United States. For example, the island of Nevis, part of the Federation of St. Kitts and Nevis, is home to tens of thousands of corporations, all of which have boards of directors. When banks and brokerage firms ask about the control of the corporation for AML purposes, the person opening the account furnishes the passport photos of the nominee shareholders, officers and directors. The same twenty people are the nominees for thousands of corporations. They have no knowledge of, or fiduciary responsibility for the corporation's business. If the nominee directors and officers were water-boarded they could not tell you what the corporation was doing or who owned it. They do not participate in "corporate" decisions and keep no records relating to corporate activities. They do not even know where the records are.
BVI is not the only jurisdiction which has legalized "sham" trusts. Other jurisdictions have passed trust laws that leave the trustee with little or no responsibility. In Belize you can be the grantor, the trustee, and the beneficiary, and have the trust considered valid. You can include provisions allowing you to redraw the trust instrument and add a flee clause which allows a change in situs for the trust in case of criminal or tax investigation. Jersey trusts can be administered outside of Jersey by non-citizens, and with no records kept in Jersey.
In this Jack repeats a theme regarding Jersey I have been highlighting for two years. But at least the US is listening now.
And let's face the reality about Cayman:
1) There are two companies in Cayman for every person
2) There are $41 million on deposit in Cayman for every person
3) There is a hedge fund for every five people in Cayman.
All of this data is true, and all obviously false. There is no such activity in Cayman. It's a charade, a sham and a legal fraud.
That's why Jack is right: this has to stop.
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Time has passed since July 2008 and we are in the midst of a huge international financial crisis. The tax havens are undoubtedly at the epicentre of this crisis, yet now most jurisdictions with the label ‘tax haven’ have recently signed up to the OECD protocol on tax exchange information. Today the Isle of Man Government proudly boasts that, having signed up tax exchange agreements with 14 countries, the Island is now rid of the pejorative label ‘tax haven’. It declares it is a squeeky-clean partner with the UK on the OECD’s ‘white list’. It claims the Island has no banks operating dodgy banking practices involving secret accounts and questionable trusts set up with the purpose of ultra rich people being able to evade tax. Informers say it is not true but they can not produce the evidence to back the facts. Is there other up-to-date evidence on record that the claims of the IoM Government are blatently untrue ?
Jim and Richard
Being small has its advantages, but sometimes it is disadvantagous because the big bully nations are able to unfairly easily shift the blame for the mismanagement of their own economy onto a small territory.
There was much hope that the GAO report woudld somehow blast the Cayman Islands out of the water or at least sink us. However that was not the case when they reall objectively examined our international business.
Now, do we let too many crooks do busiess in our Islands, yes.
Do some of the large nations let too many crooks do business in their own countries, yes.
Read the GAO report for insight into these matters.
General Accounting Office report on the Cayman Islands and Maples and Calder:
http://www.google.com/search?hl=en&as_q=cayman+general+accounting+office+report&as_epq=maples+&as_oq=&as_eq=&num=100&lr=&as_filetype=&ft=i&as_sitesearch=&as_qdr=all&as_rights=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images
You need to realize that the Cayman Islands have never had income or corporate or death taxes, neither did the USA until the early 1900’s when the Money Masters took control of the USA’s money supply and put not just the blacks back into slavery but all other shades of colours as well. Our tax base remained the same based on consumption as did yours. You changed your tax system to follow the oppressive European tax systems your forefathers left, then fought for your freedom from the European Money Masters, now they have recolonized you financially, wake up and rebel. Americans now approach income tax as an obligation, rebel people they own you, control you.
So we have companies coming to the Cayman Islands to do international business, what is so wrong with that. New York and London do not have the exclusive right to transact international business, learn that please. Stop your discriminatory bashing of the Cayman Islands.
Check out The Money Masters video on http://www.freedocumentaries.org
John
You ignore two things:
a) there is no real business in Cayman – you free ride the system and book transactions that take place elsewhere
b) By creaming a margin off transactions which have not been taxed you can avoid tax yourself
This micro model is not transferable. We can’t all be free-riders and when no one charges tax as you propose there will be no margin to charge for having no tax – so the model you propose collapses
Or to put it another way – we can’t all be thieves, which metaphorically Cayman is
Richard
Richard,
But on the other hand, micro states (by which I include countries the size of Iceland and Ireland) cannot survive any other way, because they do not have sufficient scale to be self-supporting entities. They have to bring in money from outside and as they are geographically remote, physical exports are not an option.
Mad
Not true – there are plenty of small specialist products
And there’s also the services sector. I do not make a physical product and work very remotely from most of my clients – the internet is an amazing thing though
Please use your imagination
And in its absence (amongst you deeply entrepreneurial lot) then maybe depopulation is going to happen – at least amongst those only present because of financial services
Richard
@John Ebanks
If it all so ‘OK’ and ‘above board’ for places like Cayman, Jersey & the IoM to have financial institutions that do the business that Jack Blum & you support, why then do their governments not just openly acknowledge it as ‘right’? The IoM government says it is wrong & its regulator does not know it is going on & if he did he would do something about it! When something comes to light accounts are shifted rapidly to other places like Mauritius so that when the FSC ‘investigates’ they can find nothing amiss! Come on John, you know damn well this is a game played by gangsters parading themselves as wolves in sheeps clothing.
correction! 😯 “that Jack Blum exposes and you support” !