We’re somewhat amused at the revelations coming out of the Mossack Fonseca leak, given that for the last four decades or so we’ve been following the world of offshore banks and secret tax havens.
Any journalist looking into real estate development quickly discovers that the source of money pouring into major projects often traces back to the opaque world of offshore funding.
Back when we entered the world of daily newspaper journalism, the city where we launched our career, Las Vegas, was the center of a major offshore banking operation, with the mafia running illegal cash skimmed off the casinos of the Strip and Glitter Gulch into the black world of Caribbean banks — a money machine created by Meyer Lanksy, the “little Man,” whose late partner, Benjamin “Bugsy” Siegel, had built the Flamingo, the first great star-studded Strip gambling palace.
As Chris Eshelman wrote back in 2012 in a review in the Journal of International Affairs:
For decades, criminals of all stripes—from gunrunners to money launderers—have stashed their accounting books in a murky, global, offshore library. For example, mob boss Meyer Lansky used banks in Switzerland, Cuba, and the Bahamas to hide mafia money. The Colombian Medellin cartel used the Cayman Islands’ confidentiality rules to protect its cocaine trade. Such offshore sandboxes are preferred by wealthy elites and even some too-big-to-fail banks for similar reasons: low taxes and strong secrecy rights.
Thanks the reporting of the late Jonathan Kwitny, we followed the mysterious doings of Nugan Hand, the bank used by arms merchants, the CIA, and a host of other players to enshroud their financial deeds/misdeeds.
And as veteran journalist Don Bauder wrote in San Diego Reader in that same year, offshore banking also benefitted a certain President of the United States:
According to reliable reports — not widely publicized — Nixon had a bundle of money in a now-defunct Swiss bank with smelly clients, particularly in San Diego.
The bank, which closed in 1974, was based in Zurich, but it had a branch in Nassau, the Bahamas, and its law firm and some operations were in New York City. It was named the Cosmos Bank. (Full disclosure: I began investigating Cosmos in 1970 and provided much information on it to Business Week magazine and Forbes magazine.)
Researchers have found that Cosmos was deeply involved with mobbed-up casino operations in the Bahamas and so was Nixon, often with his friend Bebe Rebozo. After Fidel Castro drove the Mafia out of Cuba, mob moneybags Meyer Lansky looked to the Bahamas for a casino haven.
Huntington Hartford, heir to a grocery fortune, set up a casino in the Bahamas and initially wanted it free of mob influence. But that was not to be, and Hartford eventually sold most of his holdings. Hartford told Dan E. Moldea, author of several organized-crime books, that Nixon made three deposits totaling $35,883,070 in the Cosmos Bank between October 21, 1971, and June 11, 1972.
What the Mossack Fonseca scandal has made apparent is the vast scale of the offshore banking and corporate tax evasion industries.
But let’s also not forget that the U.S. itself offers a wide range of virtual offshoring in the form of a growing number of states that, thanks often to Republican legislatures, have created their own laws to shroud actual corporate ownership and control.
Let us quote from an article that we wrote for the Berkeley Daily Planet, published 6 May 2005:
When is the sale of a building not a sale, at least for property tax reasons?
The question arose during last week’s heated discussion at the Zoning Adjustments Board over The Old Grove—the massive new housing-over-commercial project planned for University Avenue and Martin Luther King Jr. Way.
At one point during the discussion, Tom Hunt, a neighbor of the project, complained that the building would never be reassessed if sold in the future because it’s owned by a limited liability corporation (LLC).
If true, an LLC would be an effective tool for avoiding any future reassessments.
In an era when cash-starved local governments are laying off workers and cutting back services, cities and counties desperately need the increased revenues that come when property is reevaluated at the time of sale.
When a reporter posed the question of whether a LLC provides an escape from reassessment to a representative of the State Board of Equalization (BOE), the answer was: “Depends.”
Read the rest for a look at a relatively new form of American tax dodge, one controlling ever larger blocs of property and businesses in California and other states.
All of which is by way of a preface to this 26-minute Al Jazeera English report on the unfolding scandal, including a look at the U.S.’s own laws:
Counting the Cost – Panama Papers: Inside the shady world of tax havens
The Panama Papers shocked the world this week when a massive leak of 11.5 million tax documents exposed the secret dealings of hundreds of thousands of people, including world leaders and celebrities, and how they use shady financial mechanisms to avoid paying taxes and hide their wealth.Linking at least 12 current and former heads of state and 143 politicians to illicit financial transactions, the documents revealed how Mossack Fonseca, a Panama-based law firm, allegedly used banks, law firms and offshore shell companies, from 1977 to the end of 2015, to help hide its clients assets.
While the disclosures have since led to the resignation of one world leader, Sigmundur Davio Gunnlaugsson, the Icelandic prime minister; the problem goes beyond mere individuals.
The Panama Papers have exposed that most of the work Mossack Fonseca and the rest of the wealth-management industry do is perfectly legal.On this special edition of Counting the Cost, we take a closer look at tax havens and the legality behind them.
Alex Cobham, a director of research at the Tax Justice Network, joins the programme to discuss the loopholes that allow tax-dodging.
Stewart Patton, a US tax attorney based in Belize City, discusses the possible fallout for tax havens following the release of the Panama Papers.
We also speak to James S Henry, a senior fellow at Columbia University’s Center for Sustainable Investment, about the absence of American billionaires and companies on the leaked list and how the US, the world’s biggest economy, is surprisingly a top tax haven.
And now for a touch of the absurd from Wall Street On Parade, prompted bny a joint letter from Senators Elizabeth Warren and Sherrod Brown asking for the country’s Secretary of the Treasury to look into the scandal:
Senators Warren and Brown appear to have short memories. Otherwise, U.S. Treasury Secretary Jack Lew would be the last person that comes to mind to conduct an investigation to protect “the integrity of the U.S. financial system.” How Lew was confirmed by the U.S. Senate for U.S. Treasury Secretary remains an open mystery at Wall Street On Parade.
Lew had previously worked as an executive for the very division of Citigroup that blew up the bank during the 2008 financial crisis and cost taxpayers the largest bank bailout in U.S. history.
When Lew left his executive position at Citigroup at the end of 2008 and joined Hillary Clinton’s State Department as Deputy Secretary of State, he retained an investment in Citigroup Venture Capital International (CVCI), a $7 billion private equity fund which was housed in the Cayman Islands at the infamous Ugland House. According to a previous Government Accountability Office (GAO) report, Ugland House is home to 18,857 corporations. In 2009, President Obama called it either “the largest building in the world or the largest tax scam in the world.”
According to Lew’s January 11, 2009 financial disclosure report, his CVCI account at that point had a value of between $100,000 and $250,000. During Lew’s confirmation hearing for U.S. Treasury Secretary, he said he had sold the position at a loss.
But Ugland House was not Lew’s only Citigroup problem during his confirmation hearing. Senators challenged Lew on the fact that he had accepted a $940,000 bonus from Citigroup in early 2009, even though the insolvent bank was subsisting solely on taxpayer bailout funds at that time.
Maybe they’re operating on the “takes one to know principle”?