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Inside the Fight to Prevent Billions in International Money Laundering and Tax Shelters

Offshore havens are under attack again, but the tricky part is getting past toothless pronouncements.
 
 
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Photo Credit: Shutterstock.com/Jeff Wasserman

 

In June 2000, international groups rolled out blacklists targeting offshore refuges that shelter tax dodging and money laundering. Some observers predicted “the death of tax havens.” 

By 2002 the campaign had, as one tax analyst put it, “dissolved into a series of toothless pronouncements.”

In 2009, offshore centers faced new attacks as the United States pursued an investigation of Swiss banks and nations hit by economic crisis sought to boost tax revenues. “Tax havens and bank secrecy are finished,” French President Nicolas Sarkozy declared.

By 2010 it was clear the offshore industry had once more survived mostly unscathed.

Now offshore havens are under attack again in the wake of exposés by the International Consortium of Investigative Journalists and other news outlets.

Britain has vowed to lift the secrecy covering the Cayman Islands and other financial sanctuaries operating under its flag. Dozens of rich nations have agreed — in an unprecedented example of global cooperation on offshore issues — to begin swapping information about assets stashed in foreign accounts. Another French president — François Hollande — has promised to “eradicate” tax havens.

“Looks like the offshore party is over,” the Chicago Tribune said recently.

Will this time be different?

Many financial crime fighters are skeptical.

They fear the new initiatives mostly target small and medium tax scofflaws but allow other offshore clients — ultra-rich tax dodgers, white collar fraudsters, terrorism funders and tax-phobic corporations — to continue much as they always have.

One problem: Some jurisdictions — including Delaware and many other U.S. states — continue to harbor anonymous “shell companies” that are tools of choice for money launderers and other financial wrongdoers. The U.S. and other nations have promised to require that the real owners be revealed when companies are created within their borders, but haven’t followed through on these pledges.

Rich nations’ latest promises to crack down on offshore centers are “a lot of bluster,” Donald Semesky, former financial crimes chief for the U.S. Drug Enforcement Administration, believes. “They all look good on paper, but they’re not real good in practice.”

International groups working against offshore abuses acknowledge their efforts’ uneven history, but say there are good reasons, this time around, for optimism.

The sweeping plan for information exchange among nations shows that real change is coming, says Pascal Saint-Amans, tax policy director for the Organization for Economic Cooperation and Development, a multinational alliance that’s played a key role in efforts to quell cross-border tax evasion.

He says the OECD and its allies will continue taking an aggressive stance against offshore secrecy as the 121-nation Global Forum on Transparency and Exchange of Information for Tax Purposes meets Thursday and Friday in Jakarta, Indonesia. During the conference, the forum will announce its compliance ratings for dozens of jurisdictions, including several that will rated “non-compliant” for failing to meet its standards on financial transparency. 

“There is no trick, no loophole, to what we’re doing,” Saint-Amans says.

‘Necessary action’

The offshore world is a place of shadows and strange bedfellows. The politics of offshore reform are no different.

Initiatives by rich nations are often hampered by conflicts of interest. International coalitions working to reshape the offshore system include Switzerland and other countries that have long been known as tax havens. These groups’ members also include the U.S. and the U.K., nations whose banking systems serve as hubs for flows of illicit money from traditional offshore locales.

Advocates for offshore reform say the latest push on offshore abuses will fall short unless developed countries take strong action on several fronts — ending secrecy on company ownership, attacking corporate tax avoidance and making sure solutions benefit not only rich nations but also poor countries where corruption and offshore secrecy are intimately linked.