There's a massive story running in the US right now about defence contractors who are avoiding their obligations to pay social security and Medicare costs for their staff based in the Middle East. Associated Press have a story in this theme this morning about a company called CSA that won a multi-billion dollar contract in Kuwait in 1999 but which runs it through a subsidiary, CSA Ltd., registered in Close Brothers office in Cayman.

As AP note:

CSA Ltd. does not pay Social Security and Medicare taxes for these workers. Also, company officials maintain the subsidiary is outside the jurisdiction of U.S. courts, so federal labor rules and anti-discrimination laws don't apply either.

In fact, there's scant evidence that CSA Ltd. exists - at least physically. There's no listed office address or phone number in the Cayman Islands. Records show the corporation is registered with Close Brothers, an investment house that serves as its shallow footprint in the Caymans.

That's what offshore is all about. It's my argument that a tax haven is a location that creates legislation designed to assist a person to avoid the regulatory obligations imposed upon them in the place where they undertake the substance of their economic transactions. Here that substance is in the USA. Indeed, as AP note, a US court could not differentiate the activities of CSA in the US and Cayman. But tax is not paid because of this structure.

That's why tax havens are an international concern.

That's their parasitical nature.

Ordinary people do suffer from this, as AP also note.

That's why John Kerry and Barack Obama are getting serious about this issue.

Good for them. Well done Associated Press for bringing this one out.