WASHINGTON—The U.S. can lead the fight against corporations and the 1% who use shell companies and tax havens, which are located everywhere from the Cayman Islands to South Dakota, but only “if we get our house in order,” through a crackdown on them here at home, says Chuck Collins, an expert on the issue.
But it’s going to take a lot to do that, he adds.
“The wealth defense industry says what they’re doing is legal,” including the secret tax haven banks and the law firms which set up the shady accounts for the rich, Collins explained in an interview with People’s World. He’s the director of the Institute for Policy Studies Program on Inequality and the Common Good.
“But they’re writing the laws, and they’re writing the regulations” that govern the tax havens—or don’t.
And the system they set up not only enriches the 1% and hides their wealth, but “empowers criminals, dictators, and kleptocrats while plundering the global South.
“And we are driving the getaway car” for those malefactors, he adds.
South Dakota is the prime example in the U.S., according to the International Consortium of Investigative Journalists (ICIJ) in their Pandora Papers project, releasing and analyzing 11.9 million financial documents, memos and e-mails.
Disclosures of wealth hidden in shell companies, offshore bank accounts and tax havens are important to workers: Tax haven usage robs governments of revenues they would otherwise receive and could use for people programs, from pensions to health care to school construction, for example. And regular people worldwide get stuck with the bills, or do without.
“South Dakota suspended the rules” to allow itself to become a tax haven for rich foreigners, Collins, author of The Wealth Hoarders: How Billionaires Spend Millions to Hide Trillions, explained.
“There are no taxes, there’s no disclosure, and there are no interest rate limits” in the deep-red state, he said. “In the ’80s, they changed their laws to attract the trust industry”—which contains the tax havens—“and they repealed their anti-usury laws.”
The mover and shaker on that legislation, he noted, was Republican Bill Janklow, governor from 1979-87 and 1995-2003. “A wealthy family from Wisconsin” went to him, “and so did Citigroup.”
South Dakota not alone
But South Dakota isn’t alone. ICIJ reported some $367 billion has been secreted away there. Collins says that while New Hampshire doesn’t make the list of top U.S. tax havens, in terms of numbers of accounts—a list that also includes Texas, Florida, Delaware, and Nevada—even more wealth is stashed in the Granite State: $600 billion.
“They’re another little colonized state” by a financial system Collins calls “medieval.” In states like those, “legislators were approached by a small trust industry who said ‘Pass this.’” Without adequate analysis and attracted by potential millions flowing in, they did.
“It’d be good if there were some congressional hearings on trust law,” says Collins.
Those hearings may come sooner than people think. A bipartisan group of lawmakers, prompted by the Pandora Papers findings, introduced the Enablers Act, expanding Treasury monitoring, disclosure standards and controls over such accounts.
Led by Reps. Steve Cohen., D-Tenn., and Tom Malinowski, D-N.J., they propose expanding disclosure to cover a whole host of other financiers, including real estate trusts and companies—such as, though they didn’t say so, Donald Trump’s.
The measure would have Treasury force “basic due diligence rules on the source of funds for investment advisors, art dealers, attorneys involved in financial activity, company service providers—those who create companies for a fee—accountants, PR firms, and third-party payment providers,” a fact sheet from the lawmakers says.
“A basic due diligence program could be as simple a requirement as asking if suspicious funds are the proceeds of a crime,” it adds. Collins says due diligence and required disclosure “will tell us who’s really buying that luxury condo.”
Their measure also would “eliminate the ‘temporary’ exemption”—in place since 2002—real estate professionals, and sellers of luxury cars, ships and planes now enjoy from anti-money-laundering programs.
It also “would protect Americans from inflated real estate prices, job loss, human trafficking, and influence peddling,” the sponsors claim.
Collins, bluntly, would go further than just disclosure and checks on money-laundering. “Assets in trusts should be taxed,” he flatly states.
ICIJ disclosed that more than 4,000 bank accounts were registered in various tax havens, which the rich then used to hide their wealth from scrutiny and tax collectors, too. But while past and longtime tax havens were in nations such as the British Virgin Islands, Panama, and the Cayman Islands, there are now 206 such secretive bank accounts in the U.S.—81 of them in South Dakota alone.
Largest guilty firm is U.S.-based
Virtually all of the clients who use the tax haven accounts and most of the banks which handle them, are from overseas. But the largest of the law firms that engages in setting up the tax havens is U.S.-based Baker McKenzie.
A spot check of prominent U.S. plutocrats among the 1%—such as Warren Buffett, Jeff Bezos, Elon Musk, the late Sheldon Adelson and his wife, and Donald Trump—shows none of their names have appeared in the Pandora Papers, yet.
The ICIJ’s Pandora Papers series of disclosures and analysis was its third such massive financial analysis in five years. All three disclose how the ultrarich, the 1% and various corporations used these tax havens to shield wealth and buy everything from companies to castles to yachts.
Prominent politicians, notably in Latin America, Eastern Europe and South Asia, have also used the shell corporations and tax havens to hide billions of dollars, combined. The first ICIJ disclosures, five years ago, torpedoed several political careers. The Pandora Papers disclosures sank right-wing billionaire Czech Prime Minister Andrej Babis.
The papers showed Babis used shell companies to buy a $22 million mansion on the French Riviera. He sought a new term as premier the same week on a Trump-like platform—complete with red baseball cap and nationalistic sloganeering. His party finished third.
Collins and the lawmakers aren’t the only ones in the U.S. tackling the tax havens problem. A provision, the Corporate Transparency Act, in the fiscal 2021 military spending act (HR6395) mandates more such disclosures and crackdowns. That provision was one reason the AFL-CIO supported the bill, Government Affairs Director Bill Samuel wrote lawmakers last December.
He called the measure “a crucial first step towards addressing the vulnerabilities in our government’s anti-money laundering safeguards, preventing tax evasion and strengthening our financial system with updates to our anti-money laundering laws.”
Ironically, Congress passed that law in 2020 during Trump’s White House reign. He became infamous for keeping his corporate finances secret. Congress and New York Attorney General Letitia James are probing The Trump Organization’s taxes and exemptions.
“You have to go after the laggards and the scofflaws,” Collins says.
And the Citizens for Responsibility and Ethics in Washington (CREW) weighed in recently with an 11-page letter to the Treasury’s Financial Crimes Enforcement Network (FinCEN), which is writing rules to enforce the new law. CREW wants the rules to be tough.
Treasury should “require robust disclosure of beneficial ownership information,” it said. “The United States has antiquated and woefully deficient corporate transparency laws. This failure has led outside observers to rank the United States as the world’s second worst jurisdiction for financial secrets, trailing only the Cayman Islands.
First meaningful reform
“The Corporate Transparency Act is the first meaningful reform in decades, and FinCEN must take this opportunity to enact the bold regulatory reforms the country’s disastrously deficient regime needs. CREW cautions FinCEN against designing a regulatory framework that allows entities to avoid disclosing meaningful beneficial ownership information, or that creates exemptions from reporting requirements that could be exploited by bad actors.”
Cohen says their bill would go after the enablers—the banks like JPMorganChase, the accountants, and the tax lawyers.
“The Pandora Papers reveal how corruption undermines democracy. All around the world, countries are being looted and the most vulnerable people victimized by their elites. These kleptocrats then launder that money to the West where they enjoy the high life–spending the money on luxury cars, penthouses, jets, and opulent parties,” says Cohen.
“Some also spend it on intervening in our democracy, gaining influence in our politics and elites and working to undermine the rule of law. In order to fight corruption, we must curb the enablers,” he stated.
Collins hopes cities will also get into the act by “starting to create public ownership options, with transparency.” And he suggests federal law should be amended to put time limits on trusts. One trust, listed in ICIJ’s file on Deutsche Bank, started in 1949, for example.
“There should be no such thing as a ‘forever trust,’” he remarked.
Collins wants to curb the enablers, too. But the first step is to shine a spotlight on the skullduggery, and he said that’s what the Pandora Papers—and prior ICIJ disclosures—did.
“Connecting the dots and the names and saying why this matters is important,” he concluded.