A question of secrecy

| 04/03/2009

Make no mistake. The world’s largest ‘G20’ onshore nations, most notably the United States of America, have now openly declared war on the offshore ‘tax havens’.

Senator Carl Levin (championed by President Obama) calls them ‘offshore secrecy jurisdictions’, so called because they have ‘secrecy laws or practices that unreasonably restrict US tax authorities from obtaining needed information’. He names 34 such jurisdictions – the Cayman Islands being one – and has proposed a bill, The Stop Tax Haven Abuse Act, which is intended to target the very secrecy that US citizens are said to rely on to evade paying tax.

After all, as he rather chillingly puts it, “If offshore jurisdictions make a decision to enact secrecy laws and support industry practices furthering corporate, financial, and tax secrecy, that’s their business. But when US taxpayers start using those offshore secrecy laws and practices to evade US taxes to the tune of $100 billion per year, that’s our business.”

So how ‘secret’ is Grand Cayman? Where does bank confidentiality (that everyone has a common law right to expect) end and ‘secrecy’ (with all its illicit connotations) begin? The boundaries between the two are blurred. Levin says secrecy laws make it very difficult – impossible even – for onshore countries to find out whether their citizens are cheating on their taxes, but Cayman Island Minister Alden McLaughlin told CNS that Cayman should be differentiated from other ‘secrecy jurisdictions’, that Cayman does not hide information from the onshore world and that there are many ways for the US to get any information it needs.

Indeed, a cursory glance at the confidentiality Section 50 of the Monetary Authority Law (revised 2008) confirms that whilst it is an offence for any individual associated with the CI Monetary Authority to disclose any information other than when required to do so under island law (a conviction on indictment is liable to a fine of $50,000 and three years’ imprisonment), the Authority itself may assistonshore countries with their criminal, civil and administrative proceedings. Has the US ever been denied such assistance, I wonder? Not overtly, I am sure, otherwise Levin would surely have told us all about it.

Nevertheless, the system is clearly open to systematic abuse. The US, it seems, does have a point. In my next report, I look at what the recalcitrant US individuals and companies have actually been doing and how precisely the Stop Tax Haven Abuse Act intends to police them.

In the meantime, suffice it to say, there is cause for real concern. All the sabre-rattling is designed, I am sure, to scare the perpetrators as much as it aims to target the offshore centres. But it is not just a question of scare tactics; the US is deadly serious. Having spent $700 billion (and counting) on the Iraq war and the same again (and counting) on bail-outs following the world-wide economic slump that started in their own sub-prime back yard, they need every cent they can get.

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  1. Anonymous says:

    Cayman needs to repeal the Confidential Relationships (Preservation) Law – it serves no valuable purpose and creates delay, costs and reputational harm to the Islands.

  2. Anonymous says:

    Capital Controls, and control in general…

    If the US Senate complains that they cannot access and regulate the offshore world, how can they hope to credibly and precisely tabulate a dollar amount in terms of revenue lost to illegal tax evasion?  It is utterly nonsensical, yet $100Bln has become an acceptable figure for the willfully blind masses.  $100 Bln, $100 Tln, why not say "a Gazillion" like they do in the school yard?

    If we return from fantasyland for a moment, the USA Senate, through their Stop Tax Haven Abuse Bill, were (once again) not ready to apply their same lens to impune their own domestic low-tax states, Alaska, Delaware, Nevada for lost revenue.  Their failure to police their own backyard amounts to shameless hypocritical Statism.  

    Through the current global crisis we are witnessing an inflection point in history.  A spooling wave of acceptable egalitarian thinking driven by a predominantly leftist west wishing to combine the economy, society, and the envirnoment into one collective global responsibility.  The expectation that the world must collectively step in to unburden the banking sector’s "delinquent propensities for speculation", provide heatlhcare to everyone (particularly in the USA) and save (the USA) from global warming.  Their agenda are reactionary, confiscatory in nature, biased towards a redistribution of capital and restricting capital flight.    

    We may well see Reichsfluchtsteuer-like capital controls spawned in months ahead.  All the more reason for US based Settlors to safeguard legitimate after-tax assets offshore in functioning regulated jurisdictions like the Cayman Islands, perhaps diversifying their hard-earned legacy into a floated Yuan/Renminbi or other currency.  We hope that Cayman’s leadership is mindful not to rush to cooperate beyond the legitimate channels of inquiry which exist today.  


    • Jenny Canty says:

      $100 billion does seem rather a convenient figure, as if it has been plucked out of the air.  But Levin & co. are surely able to make some sort of estimate, and this for the following reason. 

      As I understand it, it is not illegal per se for US citizens or coporations to send money offshore.  For example, an individual may perfectly legitimately put his/her hard earned taxed cash into an independently run off-shore fund, which itself pays no corporation tax.  In this way, the individual can defer their eventual tax liability that only arises when the individual sells out from the fund.

      So it should be possible for the US auhorities to have at least some idea of the amount of money that is leaving their country bound for offshore centres.  The trouble is, they say, they then lose track of it because of the ‘secrecy’ laws.  Nevertheless, hypocritical or not, they have shown that at least some of this cash is invested improperly – illegally – by way of various ‘shenanigans’ of which more in my next report.

      Jenny Canty   





  3. Anonymous says:

    We keep hearing from Senator Levin, Gordon Brown and co about how they are going to "shut down" tax havens, but what can they actually do? How worried shoud we be exactly?

  4. Anonymous says:

    How ridicoulus for someone to think that the US loses $100 Billion in taxes per year because US citizens have bank accounts in Cayman and else where. Let’s see now the US withholding Tax rate on average is about 30% on income. So that would mean that total income would have to be $333 Billion. Now lets say interest rates were to ever reach 4% and they have not reached that high since 1998, then it would mean that there would need to be about $8,333 Billion in Bank accounts for Americans. Now they seem to think half that much is in Cayman Banks. Now is that logical.