The following is an excellent article written by David Dayen on the Salon website on April 5, 2016 titled “This is Much Worse Than Panama Papers: How America Became a World Leader in Tax Avoidance” which was published in the May 1, 2016 issue of The Progressive Populist on page 12 titled “Worse Than Panama Papers: America Became a World Leader in Tax Avoidance” and I quote:
“This is much worse than the Panama Papers: How America became a world leader in tax avoidance”
No Americans have been implicated in the stunning document trove detailing widespread global corruption — yet
Often when I’m sitting in bumper-to-bumper traffic on one of L.A.’s many freeways, my mind drifts to wondering if there’s some special autobahn above the horizon line reserved only for elite celebrities, so they don’t have to bother with the day-to-day inconveniences of the masses. That feeling returned when I read about the Panama Papers, a blockbuster release of 11 million documents from 40 years of work by one of the world’s leading specialists in tax avoidance.
The global law firm Mossack Fonseca creates untraceable shell companies for Mafia members, drug dealers, elites from sports and culture, and a host of corrupt politicians. You can come up with a couple legitimate reasons for creating a shell company: protecting trade secrets from rivals, for example. But most of Mossack Fonseca’s business involves people wanting to conceal their wealth: “Ninety-five percent of our work,” one memo reads, “coincidentally consists in selling vehicles to avoid taxes.” 214,000 of those vehicles, secured for 14,000 clients, are shown in the leaked documents.
While massive, the leak exposes only a small corner of the tax avoidance industry. Mossack Fonseca is just one of many firms in just one of dozens of international tax havens providing their services to the global elite. Back in 2012, British activists at the Tax Justice Network estimated between $21-$32 trillion sitting in offshore tax havens, of which the Panama Papers reveals only a piece. “This is the single biggest driver of global inequality in the world today,” said Clark Gascoigne of the Financial Accountability and Corporate Transparency (FACT) Coalition, an assembly of over 100 organizations dedicated to rooting out tax avoidance.
We’ve known about Mossack Fonseca’s creation of shell corporations since Ken Silverstein’s story about it in Vice well over a year ago. We’ve had similar leaks from tax havens in Switzerland and the British Virgin Islands dating back several years. Carl Levin made a cottage industry of producing damning reports about tax avoidance when he was in the Senate. Nobody should be surprised that rich people worldwide try to stash their money away or launder it through fake corporations.
That doesn’t mean this undertaking isn’t valuable. The trove of documents has revealed the participation of dozens of political leaders, their families, and associates. This includes several leaders in the Middle East, a significant percentage of the ruling party in China, and several personal friends of Russian president Vladimir Putin. The Icelandic Prime Minister could face snap elections because of his shell account in the British Virgin Islands, a known tax haven. The heads of state of Ukraine, Argentina, and a dozen countries in all are also implicated. Law enforcement investigations have begun, and we’ll probably be hearing about the fallout from this leak for months, if not years.
What we have not yet seen is any U.S. individual implicated in the leak, which seems unlikely given our stable of international wealth. The editor of Süddeutsche Zeitung, the German newspaper which first received the documents, promises there will be more to come. But one reason why Americans haven’t yet been implicated is that they already have a perfectly good place for their tax avoidance schemes: right here in the United States.
While several developed countries are already moving to reduce the anonymity behind shell companies, including a public registry of “beneficial ownership” information in the United Kingdom and a directive to collect similar information throughout the European Union, the United States has resisted such transparency. According to recent research, the United States is the second-easiest country in the world to obtain an anonymous shell corporation account. (The first is Kenya.) You can create one in Delaware for your cat.
While we force foreign financial institutions to give up information on accounts held by U.S. taxpayers through the Foreign Account Tax Compliance Act of 2010, we don’t reciprocate by complying with international disclosure requirements standardized by the Organization for Economic Co-Operation and Development (OECD) and agreed to by 97 other nations. As a result, the U.S. is becoming one of the world’s foremost tax havens.
Several states – Delaware, Nevada, South Dakota, Wyoming – specialize in incorporating anonymous shell corporations. Delaware earns between one-quarter and one-third of their budget from incorporation fees, according to Clark Gascoigne of the FACT Coalition. The appeal of this revenue has emboldened small states, and now Wyoming bank accounts are the new Swiss bank accounts. America has become a lure, not only for foreign elites looking to seal money away from their own governments, but to launder their money through the purchase of U.S. real estate.
In addition, if the United States really wanted to stop Panama or the Cayman Islands or other offshore tax havens from allowing the wealthy to avoid hundreds of billions in payments, they could do so in about 15 minutes. Our recent free trade deal with Panama allegedly prevents Americans from creating offshore tax havens there, but in general, such tax information exchanges are insufferably weak. And the little America does abroad to police tax evasion dwarfs the next to nothing we do at home.
The intertwining of global and political elites makes tax avoidance, whether legal or illegal, a secondary concern for the country, regardless of how it robs the country of resources and promotes the conception of a two-tiered economic and justice system where the upper class need not follow the same rules as the rest of us. Our politicians made a consistent choice that this rampant tax avoidance doesn’t bother them.
“Anonymous shell companies have been used to rip off Medicare,” said Gascoigne. “They’ve been used to evade U.S. sanctions. Arms dealers like Viktor Bout, the so-called Merchant of Death, used U.S. shell companies to launder money.” Indeed, Mossack Fonseca has affiliated offices in Wyoming, Nevada, and Florida. America is up to its eyeballs in this style of corruption.
It’s a fixable situation. The U.S. could sign on to the OECD standards tomorrow. In addition, the Incorporation Transparency and Law Enforcement Assistance Act would require data collection on the beneficial ownership of shell companies and limited liability corporations. But opposition from the states benefiting from foreign tax havens, as well as the National Association of Secretaries of State, has stalled progress. Secretaries of State typically have the authority to register corporations, and they prosper from registration fees. Delaware and its companion states that offer corporate secrecy convinced the Secretaries of State organization to oppose the bill.
If every state gave up this information, Delaware would still be a friendly place for corporations to register, given their legal regime, low corporate tax rates, and several other advantages. But without a federal law, states can just compete with each other over how much corporate information to hide from domestic and foreign authorities.
Extremely powerful forces hope that the Panama Papers reaction mirrors previous leaks about tax avoidance – a lot of grumbling but no lasting changes. They try to guarantee that by lobbying their respective governments. And they care more than the masses of people who don’t lobby every day for the rick to pay their taxes. The core problem doesn’t stop with the bare facts, pointed out in lurid detail by this leak. It’s that nobody really wants to do anything about it.