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Tax Evasion Nation: Will the US Be Branded a Tax Haven?

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The American Interest,  May 26, 2016

Eva Joly, photo Philippe Huguen, AFP/Getty Images.

Eva Joly, photo Philippe Huguen, AFP/Getty Images.

It will indeed, unless something changes, according to a member of a European Union delegation to the United States investigating shell companies.

An international agency could label the United States a tax haven as the result of America’s refusal to require the names of beneficial owners of companies registered in the U.S. So said European MP Eva Joly, a member of the European parliamentary delegation to the U.S. that met last week with government officials and Congressmen on the issue of America’s clandestine shell companies.

Joly, of the French Greens, told The American Interest, “We have international standards for beneficial owners, and what [the U.S. has] is not up to that.” She said the FATF (Financial Action Task Force) audited U.S. practices in January-February and predicted that the standards would be found lacking when the FATF releases its report in October.

Western governments set up the FATF in 1989 to combat money laundering, terrorist financing, and threats to the international financial system. It monitors members’ progress in implementing its recommendations.

“Europe will establish its own list of tax havens on objective criteria. One will be countries that do not have registers of beneficial owners,” Joly said.

She gained extensive experience dealing with shell company corruption as a French investigative magistrate who in the 1990s went after bribery by Elf, the French state oil company. The investigations uncovered evidence that Elf had moved illicit payments through secret offshore accounts. Key Elf officials were jailed as a result.

The issue is how to combat money laundering and tax evasion through shell companies that are registered without naming owners. In the United States, Delaware, joined in recent years by Wyoming and Nevada, allows company registrations that keep owners’ names secret. She pointed out that the G-8 said this practice had to change—that real “beneficial” owners must be listed.

The U.S. government submitted a proposal this month to satisfy that requirement, but critics say the effort appeared to be aimed more at public relations than solving the problem. First, it requires company owners to be listed only when the companies set up bank accounts, not when registrations are filed. And it affects only new companies, not the many thousands of shell companies already in existence, or the “off the shelf” companies that can be bought from company formation agents by anyone seeking to avoid the new rules.

Moreover, it allows straw men to be listed as beneficial owners. Joly said, “It is a very bad definition. They are not giving beneficial ownership, because it allows a responsible person to be seen as a beneficial owner. The trusts are excluded, because they are supposed to take a responsible person for beneficial owner, which is nonsense. It is the opposite of what we want, a very harmful wording and must be changed.”

The Europeans met with Senator Orrin Hatch (R-UT), Rep. Sander Levin (D-MI), Robert Stack, Treasury Assistant Secretary for International Tax Affairs, and Caroline D. Ciraolo, Acting Assistant Attorney General in charge of the Tax Division.“

Hatch said they are against everything that would increase revenues [taxes], and that all these measures would contribute to increased revenues, and they are against that,” said Joly. She speculated on the reasoning: “Then they would be able to tax them. That is my conclusion; he didn’t say that.”

Reflecting on the delegation’s talks with Rep. Levin, Joly said she believed that the Democrats “understand very well that this is what is needed. They are very positive. But they are not optimistic as to the possibility to pass a law, because the Republicans are against it. Because they have a majority, and especially now in an election year.”

“In the Treasury we met with two responsibles, Robert Stack and [Assistant Secretary for Tax Policy] Mark Mazur. They say they have to request a number, an employment number, and for that they have to say who they are. But with this definition, the trusts are excluded.”

“They didn’t say were going to improve it. I did not understand why they would propose a rule not up to international standards. They said the U.S. laws are in compliance with FATF standards. But that is to be seen.”

Joly said, “The people I met with didn’t have hope to change the actual status of Delaware, Nebraska, and Wyoming from being tax havens to states that are complying with international standards. I’m leaving the U.S. with the impression that the political situation is blocked and there is no prospect that the definition of a beneficial owner will be changed quickly.”

She added, “The U.S. has to change and understand this is serious, that today in Delaware, terrorists can hide, criminals can hide, and why do they allow that?”

She said if the United States fails to improve existing rules and adopt international standards to combat money laundering and terrorist financing, she would suggest to the Greens that “the USA doesn’t have proper definition of beneficial owner and should be classified as a tax haven. Then I think we could use the successful FATCA approach and work out something similar.

(FACTA, the Foreign Account Tax Compliance Act, is a U.S. law that requires foreign banks to report on U.S. account holders, or U.S. financial institutions must withhold 30 percent of transfers to them.)Joly acknowledged that getting such a measure passed is unlikely, as it would have to be proposed by the European Commission and accepted by the parliament.

The U.S. position on country-by-country corporate tax reporting was better, Joly said. Such reporting means that corporations report their profits for each country, rather than adding them together so they can hide which profits were earned in a particular country. She said that the Obama Administration wants to do this and is currently considering whether it can be done without legislation.

She noted that Hatch’s opposition to anything that would increase taxes also applied to this issue. She explained, “The Republicans are afraid this will be a disadvantage for the American companies by showing what they earn in different countries. It could open up for India to ask for more of the benefits, for instance.” She indicated that if a law is required, it would be politically blocked, because “the Republicans will not support new legislation.”

Click here to read Lucy Komisar’s “Ending Tax Haven Abuse,” as well as her summary of the Greens/European Free Alliance report on the U.S. Treasury proposal.

Ending Tax Haven Abuse,” on The Komisar Scoop.

 

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