Update to ‘Offshore Leaks’ investigation: WaPo investigative report

Posted by AzBlueMeanie:

The Washington Post today has a lengthy investigative report into the "Offshore Leaks" investigation by a consortium of media outlets from 46 countries around the world. See previously, Offshore world: 2.5 million leaked files reveal stunning extent of global tax havens. You can read the full ICIJ report here.

The Washington Post reports today, Piercing the secrecy of offshore tax havens:

A New York hedge fund manager allegedly swindles $12 million from a
prominent Baltimore family. An Indiana couple is accused of bilking
hundreds of customers by charging for free trials of cosmetic products. A
financial manager in Texas promises 23-percent returns but absconds
with $33.5 million of his investors’ money in a classic Ponzi scheme.

All three cases have one thing in common: money that ended up
in offshore accounts and trusts set up in tax havens around the world.

The existence of the trusts surfaced during a joint examination of the offshore world by The Washington Post and the International Consortium of Investigative Journalists,
a D.C-based nonprofit news organization. ICIJ obtained 2.5 million
records of more than 120,000 companies and trusts created by two
offshore companies, Commonwealth Trust Ltd. (CTL) in the British Virgin Islands
and Portcullis TrustNet, which operates mostly in Asia and the Cook
Islands, a South Pacific nation. The records were obtained by Gerard Ryle, ICIJ’s director, as a result of an investigation he conducted in Australia.

Many
people use the offshore world for legitimate purposes, for legal tax
shelters or to smooth the way for international trade. Overseas havens
vaulted into public consciousness last year with stories about
Republican presidential nominee Mitt Romney’s accounts in the Cayman Islands. Recent coverage of the Cyprus banking crisis has thrust the issue back into the spotlight.

U.S. citizens are permitted to move money offshore as long as they
report their account information to the Internal Revenue Service. But
there have long been concerns that much of the money is not reported and
bleeds tax revenue from governments worldwide. Recently, aspects of the
offshore world came under assault after whistleblowers alerted the IRS
to thousands of unreported U.S. accounts in Swiss banks, resulting in an
amnesty offer to violators who paid billions in fines to the U.S.
government.

The records reviewed by The Post and ICIJ expose how
havens in the South Pacific and Caribbean in some cases have become
sanctuaries for individuals seeking to conceal their activities from
investigators and investors.

Among the 4,000 U.S. individuals
listed in the records, at least 30 are American citizens accused in
lawsuits or criminal cases of fraud, money laundering or other serious
financial misconduct.

They include billionaire hedge fund manager Raj Rajaratnam, who was convicted in 2011 in one of the biggest insider trading scandals in U.S. history, and Paul A. Bilzerian, one of the most famed corporate raiders of the 1980s, who was convicted of securities fraud.

* * *

Fraud experts say offshore bank accounts and companies are vital to the operation of complex financial crimes. Allen Stanford, who ran a $7 billion Ponzi scheme, used a bank he controlled in Antigua. Bernard Madoff,
who ran the largest Ponzi scheme in U.S. history, used a series of
offshore “feeder funds” to fuel the growth of his multibillion-dollar
house of cards.

Michael I. Goldberg, a Fort Lauderdale, Fla., attorney who often
testifies as an expert on Ponzi schemes, said it is rare to see one that
does not make use of the offshore world.

“If you don’t, it’s
usually a very parochial, Podunk type of Ponzi,” he said. “But the more
sophisticated ones almost always do.”

The offshore world makes it
hard for prosecutors pursuing complex financial crimes to follow the
money, because many offshore jurisdictions refuse to recognize U.S.
subpoenas and account information is hidden under layers of corporate
shells.

“People were trying to hide their money from the IRS, or
they were trying to hide their money from law enforcement, or they were
trying to hide their money from regulators,” said Paul E. Pelletier, the
principal deputy chief of the Justice Department’s fraud section who
prosecuted Stanford before entering private practice in 2011. “As a
prosecutor, it was very difficult pursuing these people.”

* * *

For the better part of a century, the U.S. government has been trying
to rein in the offshore world. In 1937, Treasury Secretary Henry
Morgenthau Jr. wrote to President Franklin D. Roosevelt to warn that
millions of tax dollars were being kept in offshore accounts and limited
partnerships, including one $3 million account in the Bahamas.

“The
companies are frequently organized through foreign lawyers, with dummy
incorporators and dummy directors, so that the names of the real parties
in interest do not appear,” Morgenthau wrote.

Today, there are
between 50 and 60 offshore financial centers around the world holding
untold billions of dollars at a time of historic U.S. deficits and
forced budget cuts. Groups that monitor tax issues estimate that between
$8 trillion and $32 trillion in private global wealth is parked
offshore.

For most investors in the United States, the first step
to open an offshore account is to contact one of the hundreds of law
firms specializing in “asset protection.” These firms then call on a
sprawling industry of offshore-based middlemen, such as CTL and
TrustNet. They set up companies and arrange trusts and hard-to-trace
bank accounts.

Sen. Carl M. Levin
(D-Mich.) has been holding hearings and conducting investigations into
the offshore world for nearly three decades. In 2010, Congress passed
the Foreign Account Tax Compliance Act requiring that U.S. taxpayers
report foreign assets to the government and foreign institutions alert
the IRS when Americans open accounts.

In February, Levin
introduced legislation that would permit the Treasury Department to
penalize offshore financial institutions that “significantly” impede
U.S. tax enforcement and put an end to accounting practices that enable
corporations to evade billions in taxes.

“We can’t afford to lose
tens of billions of dollars a year to tax-avoidance schemes,” Levin
said. “And many of these schemes involve the shift of U.S. corporate tax
revenues earned here in the U.S. to offshore tax havens.”

The
efforts by Levin and other lawmakers have been opposed by powerful
lobbying interests, including the banking and accounting industries and a
little-known nonprofit group called the Center for Freedom and Prosperity.
CF&P was founded by Daniel J. Mitchell, a former Senate Finance
Committee staffer who works as a tax expert for the Cato Institute, and
Andrew Quinlan, who was a senior economic analyst for the Republican
National Committee before helping start the center.

In filings with the IRS, the center says it has “met with more than 175 Capitol Hill offices on benefits of tax competition.”

* * *

Quinlan, the president of CF&P, declined to disclose his donors
or say how much of the $200,000 his organization raises each year comes
from the offshore world.

“I don’t think it matters what percentage
of the money comes from which donor,” Quinlan said. “There are huge
offices on K Street that lobby on behalf of interests that are outside
the United States. We’re just trying to be as effective as we can be.”

Mitchell,
the co-founder of CF&P, added that nations shouldn’t be telling
other countries how to conduct their affairs and noted that the United
States is one of the worst offenders in the world when it comes to
corporate secrecy.

“The United States is one of the biggest tax
havens in the world,” Mitchell said. “In general, the United States is
impervious to fishing expeditions here, and then the United States turns
around and says, ‘Allow us to do fishing expeditions in your
country.’ ”

The report includes a number of case studies omitted here.