Welcome to our “Just the FACTs” newsletter, which aims to highlight pertinent news stories and information related to our goals of curtailing offshore tax haven abuses, increasing the transparency of company ownership, and curbing the laundering of illicit money through the financial system.
Send feedback or items for future newsletters to Jacob Wills at email@example.com.
State of Play
More corrupt officials face consequences as reverberations from the Panama Papers continue. Pakistan’s Supreme Court has indefinitely disqualified the prime minister, Nawaz Sharif, from public service after the prime minister and his children were implicated in dubious real estate transactions in London. A subsequent investigation showed his family owned luxury real estate properties through anonymous companies. Based on their income, it was unlikely they could afford the properties, suggesting they were potentially hiding stolen assets and engaging in illicit financial practices. In a blog responding to the action taken by the supreme court, Global Witness’ Naomi Hirst noted this as an example of how anonymous companies are used to embolden corrupt officials and called on leaders to fulfill their promises to eliminate them.
Evidence of anonymous companies contributing to conflicts around the world is mounting. Shell companies have already been linked to human traffickers and corrupt dictators. Recent revelations show anonymous companies have enabled countries like North Korea and Russia to evade sanctions. In a recent blog, Global Witness’ Mark Hays addressed risks anonymous companies pose to national security. Among these threats are: fraudulently obtaining government contracts, hiding conflicts of interest, and endangering national security by unintentionally engaging with corrupt foreign actors.
With tensions mounting with North Korea, there is renewed energy in Congress to crack down on the illicit use of anonymous shell companies. Just before leaving for August recess, Senators Ron Wyden (D-OR) and Marco Rubio (R-FL) introduced the Corporate Transparency Act (S.1717). This bill functions as the companion bill to the bipartisan House bill of the same name (H.R.3089), which was introduced earlier this summer. The bills aim to end the abuse of anonymous shell companies by collecting beneficial ownership information upon incorporation. Over the past couple of weeks, a number of new financial services trade associations have announced their support for the Corporate Transparency Act, including the National Association of Federally-Insured Credit Unions (NAFCU), the Bankers Association for Finance and Trade (BAFT), the Institute of International Bankers (IIB), and the Institute of International Finance (IIF).
After recess, the tax policy debate will take center focus in Congress, where lawmakers have indicated that corporate taxes are a priority. ITEP’s Matthew Gardner offered some very useful insight on how to approach the issue of offshore corporate cash. Highlighting Microsoft, Matt explains some eye-popping numbers in their recent annual report, which shows that the company had a worldwide income of $43 billion over the last two years yet suspiciously claimed only 0.3 percent of that was earned in the United States.
The Treasury Department is reviewing (with an eye towards repealing) pragmatic safeguards aimed at preventing companies from artificially renouncing their American citizenship in favor of tax haven locales. The FACT Coalition submitted comments calling on the administration to uphold these measures because of the role they play in protecting small businesses and solely domestic companies from offshore profit-shifting by multinational companies. ITEP, in their letter to the Treasury, notes that repealing this safeguard could cost taxpayers $7.4 billion.
Profit-shifting by multinationals is not new, but it has certainly become worse in recent years. In 2004 — when then-President George Bush pushed a proposal to return offshore cash at an absurdly low 5.25% tax rate — a mere $527 billion in profits were estimated to be kept offshore. In the years following the 2004 tax holiday on overseas stockpiles, the hoards of profits booked offshore have exploded to an estimated $2.6 trillion. The FACT Coalition’s Amy Zhang, argued that the repatriation holiday — sold then as a jobs bill — was anything but. In fact, the 58 companies that benefited most from the tax giveaway cut an estimated 600,000 jobs over the next few years. Worse, by leaving the policy of deferral intact, the bill effectively incentivized a mass exodus of American capital to offshore markets. As the end of recess nears, the focus will shift to the tax debate — hopefully the mistakes of the past won’t be repeated.
Finally, FACT’s Gary Kalman was honored to be recognized by the Open Society Foundations this summer with one of their Summer 2017 New Executives Fund grants. The competitive two-year awards are designed to give a new executive the flexibility to invest in the organization’s development or their own leadership.
From the FACT Coalition and Its Partners
Bipartisan Momentum Builds as Senators Introduce Measure to Curb Money Laundering, Terror Financing
Fact Coalition, August 3, 2017
Momentum continued to build towards curbing criminal money laundering and terror finance Thursday as Sens. Ron Wyden (D-OR) and Marco Rubio (R-FL) introduced the Corporate Transparency Act (S.1717), the Senate companion to a bipartisan House bill (H.R.3089) aimed at ending the abuse of anonymous shell companies.
The legislation, which would require companies to disclose their true owner(s) when they incorporate and keep their ownership information up to-do-date, was welcomed by the Financial Accountability and Corporate Transparency Coalition (FACT Coalition), a non-partisan alliance of more than 100 state, national, and international organizations promoting policies to combat the harmful impacts of corrupt financial practices.
Read the full Release
Bipartisan Bill Seeks to Secure Airways from Criminals and Terrorists
Fact Coalition, July 28, 2017
A bipartisan group of lawmakers introduced a bill Friday to secure the U.S. aviation system from criminal actors and terrorists hiding behind anonymous shell companies, in a move welcomed by the Financial Accountability and Corporate Transparency Coalition (FACT Coalition), a non-partisan alliance of more than 100 state, national, and international organizations promoting policies to combat the harmful impacts of corrupt financial practices.
The Aircraft Ownership Transparency Act of 2017 [H.R. 3544], sponsored by Reps. Stephen Lynch (D-MA), Peter King (R-NY), and Carolyn Maloney (D-NY), would require that those seeking to register aircraft with the Federal Aviation Administration (FAA) through anonymous shell companies disclose the true human owners behind the entities.
Read the full Release
The Drumbeat for Action by US Congress Grow as More Bills to Tackle Anonymous Companies are Announced
Global Witness, August 3, 2017
By Mark Hays
This summer, as a divided US Congress has grappled with sprawling, controversial issues like health care reform and struggled with gridlock, a quiet drumbeat of bipartisan support for revealing the real owners behind the anonymous shell companies used to facilitate crime, corruption and other ills has been growing behind the scenes.
The ongoing investigation into Russian interference in the 2016 US election has also brought shell companies and money laundering to the fore. Time and again shell companies have been used as vehicles for the corrupt and other criminals to get, move or hide dirty money – and US policy makers are finally catching on.
Read the full blog
From Pakistan to Park Lane Via Panama–How Prime Minister Sharif’s Family Used Anonymous Companies
Global Witness, July 28, 2017
By Naomi Hirst
Over a year on and the effect of the Panama Papers continues to reverberate.
Today the leaks claimed another political scalp: Pakistan’s Supreme Court has removed Prime Minister Nawaz Sharif from office. The leaks showed how Sharif and his children were linked to prestigious Park Lane apartments through a complex web of anonymously owned British Virgin Island (BVI) companies.
The Sharif family have denied any wrongdoing. And currently, there is nothing at all illegal about owning UK properties through anonymous companies either in Pakistan or in the UK.
And that is precisely the problem.
Our investigations have shown time and again how easy it is for the criminal and corrupt to launder money through luxury property, hiding the real owners behind anonymous companies, often registered in secrecy jurisdictions like the BVI and hidden behind “nominee” directors.
Read full blog here
U.S. Policy on Shell Companies Enables Corruption. Congress Can Change That.
National Resource Governance Institute, July 12, 2017
By Alexandra Gillies
Shell companies have been called the “getaway cars” of corruption. In some jurisdictions, including the U.S., individuals can easily set up anonymous companies and use them to hide stolen funds. Last week, members of congress introduced bipartisan bills in the House of Representatives and Senate that would, finally, make this practice more difficult.
The legislation would also address contradictions in current U.S. policy toward corruption, as shown by several oil sector cases mentioned below.
Read the full Blog
The Tax Giveaway That Left Thousands Without Pay
FACT Coalition, August 14, 2017
By Amy Zhang
In 2004, the grass seemed greener on the other side — overseas where multinational corporations kept stashing profits. A corporate tax policy (known as “deferral”) allows U.S. corporations to defer taxes on their profits booked offshore until they are returned to the U.S. By 2004, deferral had led to a cash hoard of $527 billion, equivalent to 4.3 percent of GDP, amassing offshore.
Back then, President Bush signed the American Jobs Creation Act of 2004 (AJCA) believing that bringing home the stockpiles of cash would mean huge jobs and growth here in the U.S. The act provided a “tax holiday,” allowing corporations to return their deferred profits at an astonishingly low 5.25 percent — instead of the statutory 35% rate.
Companies — including Pfizer, Merck & Co., Hewlett-Packard, Johnson & Johnson, and IBM — immediately took advantage. Together, these five corporate giants repatriated $88 billion from their offshore accounts located in well-known tax havens such as Switzerland, the Cayman Islands, and the Bahamas. According to the IRS, some 843 companies followed suit resulting in the repatriation of $312 billion in qualified earnings. In total, the companies received $265 billion in tax deductions between 2004 to 2006.
Read the full Article Here.
Alliance of Good-Governance Groups Submits Comments in Support of Rules Combating Earnings-Stripping
The FACT Coalition, August 07, 2017
In comments submitted to the U.S. Department of the Treasury on Monday, good government watchdogs called on the administration to protect a recent safeguard aimed at combating offshore tax avoidance. The Financial Accountability and Corporate Transparency (FACT) Coalition — a non-partisan alliance of more than 100 state, national and international organizations working toward a fair and honest tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices — urged the agency to strengthen the measure that curbs a practice called ‘earnings-stripping’. The rule is known formally as the Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (T.D. 9790; 81 F.R. 72858).
Groups weigh in on Obama-era tax rules targeted for changes
The Hill (FACT Coalition), August 07, 2017
By Naomi Jagoda
…But other groups defended the inversion rules, arguing that they are needed to help limit tax avoidance.
“We believe that a robust implementation of this rule will help curb abusive corporate tax avoidance practices, including the incentive for companies to engage in corporate inversions,” the Financial Accountability & Corporate Transparency (FACT) Coalition wrote Monday.
The FACT Coalition also joined a number of liberal groups — including Americans for Tax Fairness, Daily Kos, Credo and Public Citizen — in sending another letter recommending that Treasury keep the debt-equity rule “in its entirety.”
“Reversing course on the … rule could mean the return of frequent and sizable corporate inversions,” the groups wrote.
Read the full article.
How to Think About the Problem of Corporate Offshore Cash: Lessons from Microsoft
ITEP, August 04, 2017
By Matthew Gardner
For a corporation with deeply American roots, Microsoft seems remarkably unable to turn a profit here. Against all odds, the Redmond, Washington-based company continues to claim that virtually all its earnings are in foreign countries. Microsoft’s latest annual report, released earlier this week, shows that over the past two years, the company enjoyed worldwide income of almost $43 billion. It claims to have earned just 0.3 percent of that—$128 million—in the United States.
The most obvious explanation for Microsoft’s comparatively small U.S. profits is that it can avoid virtually all U.S. income taxes by pretending its profits are being earned in tax havens. The company now discloses a total of $142 billion in “permanently reinvested” foreign earnings—an increase of $18 billion in the last year—and reports it would pay a tax rate of 31.7 percent if these profits were repatriated. This means that the company is currently avoiding a stunning $45 billion in taxes by holding its money offshore.
Read the full article here
General Coalition Updates
Open Society Foundations Announce Summer 2017 New Executives Fund Recipients
Open Society Foundations (FACT), August 14, 2017
Grants awarded to support new leaders at nonprofit organizations around the world
NEW YORK—Twelve newly appointed leaders of nonprofit organizations in countries ranging from Malawi to Brazil have been awarded New Executives Fund grants to help implement their vision of change, the Open Society Foundations announced today. The recipients represent a wide array of organizations focused on open society concerns, including but not limited to harm reduction, refugee and asylum rights, arts education, and independent journalism.
Since its inception in 2013, the New Executives Fund has awarded 75 grants for a total of $7,295,000. These competitive two-year awards, ranging from $20,000 to $250,000, are designed to give a new executive the flexibility to invest in the organization’s development or their own leadership.
The awards are given out twice a year. The latest grantees received their awards in summer 2017 and include:
- Gary Kalman, Financial Accountability and Corporate Transparency Coalition…
Read the full article here
Building an Economy that Serves and Uplifts the Vulnerable: An Interview with Eric LeCompte
Millennial Journal (Jubilee USA), August 01, 2017
Eric LeCompte is the executive director of Jubilee USA. Millennial editor Robert Christian interviewed him on his work to address global inequality and build an economy that serves all persons, particularly the poor and vulnerable.
What are some of your goals looking forward?
We are going to continue moving forward strategic campaigns among people of faith to protect vulnerable communities and prevent financial crisis. We’ll win legislation that ensures banks, lenders, and hedge funds are transparent and don’t exploit people suffering financial crisis. We’ll push trade agreements that ensure poor people can access lifesaving medicines. Working with religious leaders on every continent, we will stop austerity policies from closing schools and hospitals. We’ll tackle some of the worst practices of some payday lending companies. We can win global development agreements to stop tax evasion and corruption. We’ll stop anonymous shell companies from being vehicles that steal from poor people and protect human traffickers. Together we’ll address global inequality and build an economy that serves, protects, and promotes participation of the most vulnerable.
Read the full article here
Issues in the News
Shell Companies Enable North Korea To Dodge Economic Impact Of Sanctions
NPR, August 07, 2017
All Things Considered
NPR’s Ari Shapiro talks to Anthony Ruggiero of the Foundation for Defense of Democracies about how North Korean shell companies enable the country to circumvent the economic impact of sanctions.
Read the full Interview Here.
Big-name US Senators are Joining the Push to Crack Down on Kleptocrat-Friendly Shell Companies
Quartz, August 03, 2017
By: Max de Haldevang
Momentum seems to be growing in the bipartisan push to tackle secretive US shell companies. Since bills were introduced in late June in both the House and the Senate, the legislative movement has gained its first national figure: 2016 Republican presidential candidate senator Marco Rubio.
Rubio, along with Ron Wyden, the top Democrat on the Senate Finance Committee, is putting forward a third such bill to force US firms to disclose to the Treasury who actually owns them. This, in theory, would stop kleptocrats, drug traffickers, and terrorist financiers from using anonymous shell companies to launder their cash—or at least make it easier for law enforcement to track them down.
Read full article here
NAFCU backs Wyden-Rubio Corporate Transparency Act
National Association of Federally-Insured Credit Unions, August 04, 2017
NAFCU’s Brad Thaler yesterday lodged support for the Corporate Transparency Act of 2017, legislation introduced this week by Sens. Ron Wyden, D-Ore., and Marco Rubio, R-Fla., to facilitate more coordination between state agencies, law enforcement and credit unions under Bank Secrecy Act programs.
Thaler, NAFCU’s vice president of legislative affairs, noted the good working relationship between credit unions and Treasury’s Financial Crimes Enforcement Network. “However, BSA requirements still remain a burden to implement, especially with the ever-growing tidal wave of new regulations since the financial crisis,” he wrote in a letter to the two senators.
The new Senate bill (S. 1717), which is similar to a NAFCU-backed measure from Rep. Carolyn Maloney, D-N.Y., is aimed at ensuring credit unions have access to beneficial ownership account data required to be reported under the BSA. The measure focuses specifically on data collected by states that is related to corporations or limited liability companies formed under state laws.
Read full release here
Nigeria’s Missing Billions Turn Up in Familiar Places
Financial Times, August 2, 2017
When Lamido Sanusi, Nigeria’s former central bank governor, exposed in 2014 the gargantuan scale of theft at the state oil company, he made waves at home and abroad. The court in Houston that began revealing — during asset forfeiture proceedings last month — where some of the “missing billions” washed up scarcely created a ripple.
Yet the details emerging of how Nigerian funds were allegedly laundered through US and UK property via western banks are in some respects as scandalous as the original heist, even if the picture is still far from complete. The US lawsuit suggests that then oil minister, Diezani Alison-Madueke and the two Nigerian traders named by US prosecutors as her accomplices, flushed the proceeds of an alleged international bribery scheme with ease through US and UK jurisdictions.
Read full Article
EU Mulls Options for Sanctions for Tax Haven Blacklist
Bloomberg BNA, August 09, 2017
By Joe Kirwin
European Union member states are considering various options for sanctions on countries that end up on the EU’s tax haven blacklist, including a flexible approach that could lead to different EU countries imposing different measures against the same offending jurisdiction.
EU countries will also be able to maintain their own tax haven blacklist that includes different countries or jurisdictions as well as different sanctions, to those agreed at the EU level. The EU is due to finalize its tax haven blacklist by the end of 2017.
Read full Article
How much of the world’s wealth is hidden offshore?
BBC World Service, July 30, 2017
By Tim Harford
Would you like to pay less tax? Make a sandwich: specifically, a “double Irish, Dutch sandwich”.
Suppose you’re American. You set up a company in Bermuda and sell it your intellectual property. It then sets up a subsidiary in Ireland.
Now, set up another company in Ireland: it bills your European operations for amounts resembling their profits. Now, start a company in the Netherlands.
Read full Article
Trump Reversal on International Taxes Could Hurt U.S. Workers
CBPP, July 26, 2017
By Chye-Ching Huang
Treasury Secretary Steven Mnuchin said today that the Administration places “very, very, very high” importance on its proposal for a territorial tax system that, President Trump says, will “level the playing field for American companies” — but that, in reality, risks disadvantaging small and domestic U.S. businesses relative to multinationals and threatening U.S. revenues and wages.
Mnuchin’s comments highlight a key reversal in President Trump’s tax policy between his campaign and his presidency. While his tax plan largely mirrors his campaign tax plan, providing more than $5 trillion in tax cuts mostly for the wealthy, one big change is its proposal for a territorial tax system, which would exempt the foreign profits of U.S. multinational corporations from U.S. taxes. The campaign plan would have required U.S. multinationals to immediately pay tax on their foreign profits at the same rate as domestic profits.
As our brief explains, a territorial system would bring the following problems…
Read full Article
The Trump Administration Rolls Back Anti-Corruption Efforts in the Oil Industry
The New Yorker, August 10, 2017
By Steve Coll
In February, in one of its first acts of lawmaking, the Trump Administration, with the Republican-controlled Congress, rescinded a pending Securities and Exchange Commission rule that would have required oil companies to disclose details of their payments to international governments in connection with oil and gas production.
Read the full article here.