News & Events

Just the FACTS: June 15, 2017

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

State of Play

For the second time, Wells Fargo was found liable for a tax penalty in connection with an abusive tax shelter.  This points to a broader trend where companies’ abusive tax schemes are being exposed to increasing public discontent.  In the case of Wells Fargo, a jury in Minnesota had previously nixed $350 million in foreign tax credits finding that they “lacked both economic substance and a non-tax business purpose.” Now, a federal court has found them liable for a 20% negligence penalty from the IRS. The court’s decision is yet another example that the tax gimmicks employed by multinationals to inflate profits are becoming riskier.

In a blog, FACT’s Jacob Wills explained the current climate around tax fairness, “Scandals have shaken public confidence in the integrity and fairness of the tax system at a time when tightening budgets and increasing deficits are leading to calls for austerity and scaling back on long relied upon public services.”

It should be no surprise that tax avoidance schemes face increased scrutiny, a recent report suggests that the ultra-wealthy are dodging more in tax than many had previously estimated.   Economists Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman took data from two tax haven leaks — the Panama Papers and Swiss leaks — in order to get more accurate estimates of tax evasion.  Their findings: the ultra-rich — on average — evade about 30% of their due taxes, compared to the average evasion rate of 2.9%.

Globalization has no doubt made tax avoidance easier.  Multinational companies have been able to use their leverage between countries extorting lower tax rates and perpetuating a race to the bottom.  The Organization for Economic Cooperation and Development (OECD) has developed a multilateral initiative on Base Erosion and Profit Shifting (BEPS), meant to target the gaps in tax rules exploited by multinational companies.

The BEPS initiative moved forward last week with roughly seventy countries signing an agreement to combat tax avoidance by multinationals by amending bilateral tax treaties.  Despite being instrumental in negotiating the convention, the U.S. was absent.

The absence of the U.S. is troubling and for U.S. taxpayers could be expensive.  American taxpayers lose in excess of $130 billion per year due to multinational tax dodging — more than any other country.   As FACT’s Clark Gascoigne noted this is yet another sign that the administration intends to continue it’s abdication from American leadership.  “After withdrawing from the climate change accords last week, the administration backed away from another Paris-based international agreement…”

While the U.S. abstention from the agreement suggests the administration intends to retreat from international moves to combat tax avoidance, public sentiment remains heavily in support of restoring fairness to the tax system.

Other counter avoidance measures proceeded this week as two EU Parliament committees voted in favor of public Country-by-Country Reporting — albeit with a few troubling loopholes.  FACT had joined our European partners in a recent letter sent to members of the EU Parliament — a sentiment that was echoed by mainstream investors like former BlackRock managing director Morris Pearl, who published an op-ed last week in a European outlet calling on the MEPs to push forward with transparency.

From the FACT Coalition and Its Partners

Incorporation Transparency

New Overdose Data Sharpens Call for Closing Loopholes Used to Launder Opioid Profits

Fair Share, June 7, 2017

After new research by the New York Times found that overdose deaths are the leading cause of death of Americans under 50, it’s a powerful reminder that the recommendations of our report, Anonymity Overdose, have not been addressed by Congress.

The scale of the opioid crisis is staggering, and deserves an all-hands-on-deck response from our leaders.

We know why cartels traffic these drugs. They do it for the money, and we at Fair Share believe it’s time to go after the money more effectively.

Read the full press release
Read the full report
FACT’s blog

America Must Continue The Fight Against Kleptocracy Around The Globe

The Hill (Kleptocracy Initiative & Center for a New American Security), June 5, 2017

By Kate Bateman and Charles Davidson

Massive protests in Venezuela, Tunisia, Brazil, Morocco, and the Dominican Republic over the last few weeks have highlighted political graft around the globe, and the ensuing instability and violence that can result.

In Washington, the Trump administration has signaled an intention to continue the United States’ fight against corruption and kleptocracy abroad. The White House sent a letter to Congress pledging to “hold perpetrators of human rights abuses and corruption accountable,” in line with major anti-corruption legislation that Congress passed last December, the Global Magnitsky Act. Days later, Attorney General Jeff Sessions vowed to continue enforcement of the Foreign Corrupt Practices Act, which prohibits U.S. companies and individuals from bribing foreign officials. That message was particularly important, given that President Trump had previously called the FCPA a “horrible law.”

Read the full op-ed

New Legislation Would Reveal the Real People Behind Contracting Companies Receiving U.S. Tax Dollars

Global Witness, May 16, 2017

By Eryn Schornick

Today, new U.S. federal legislation was introduced that would require the disclosure of information about the real owners of contract bidding companies (also called ‘beneficial owners’) seeking to lease high-security space to the federal government.

The bipartisan Secure Government Buildings from Espionage Act of 2017 was introduced by Congressmen Stephen Lynch (D-MA) and Peter King (R-NY) in response to the recent discovery that U.S. government facilities and agencies, including the FBI, were leasing high-security space from foreign owners they knew very little about. Potential risks include security breaches, cyber-attacks, or leasing buildings which may be funded by corruption or have hidden owners that are using their rent to launder money.

Read the full blog


Paris 2.0 — First Climate, Now U.S. Retreats from Anti-Tax Avoidance Accord

FACT Coalition, June 7, 2017

“U.S. Administration Chose to Double Down on Its Abdication of American Leadership.”

WASHINGTON, D.C. – Just one week after pulling out of the Paris Agreement to combat climate change, the U.S. administration has chosen to back away from yet another international convention — this one to combat abusive tax avoidance. Coincidentally, the tax agreement was also negotiated and signed in Paris — at the headquarters of the Organization for Economic Co-operation and Development (OECD).

Read the full press release
Jubilee USA press release
OECD’s press release
Politico article
IBTimes article
Accounting Today article
Tax notes article

Parliament’s Tax Transparency Compromise Leaves Back Door For Corporate Secrecy

Financial Transparency Coalition, June 12, 2017

Today, members of the European Parliament (MEPs) voted to support a ramp up of efforts to clamp down on tax abuse by shedding light on the activities of multinational corporations around the globe. But a last minute compromise amendment raises questions about the ultimate effectiveness of the entire tax transparency plan.

MEPs voted to support an expanded tax transparency initiative by requiring multinational corporations (MNCs) to publish basic financial information on a country by country basis for all countries where they operate. This expands on last year’s proposal from the European Commission, which only required MNCs to publish information on their operations in EU member states, and a still to be determined list of tax havens. By requiring these filings for all countries of operation, journalists, researchers, and civil society would be able to see a much fuller picture of their activities.

Read the full FTC press release
Read the FACT Coalition’s blog ahead of the vote
Read the letter from FACT to the EU Parliament ahead of the vote

Multinationals should say what they pay

Euractiv (Patriotic Millionaires, FACT, Oxfam), June 9, 2017

By Morris Pearl

From an investor’s perspective, planned transparency is far preferable to surprise leaks or investigations into corporate tax avoidance strategies which lead to reputational risk and government crackdown, writes Morris Pearl.

Morris Pearl is a former managing director at BlackRock Inc. and the Chairman of Patriotic Millionaires, a group of wealthy Americans who are committed to building a more prosperous, stable and inclusive nation.

Read the op-ed by Morris Pearl

Tax Avoiding Companies Well Represented at Tax Reform Hearing

ITEP, May 18, 2017

By Richard Phillips

Today the House Ways and Means Committee will hold its first tax reform hearing of 2017, which marks the official opening of the tax reform debate in Congress. True tax reform, if the committee sought to achieve it, could create more jobs and ensure companies are paying their fair share by cracking down on the massive offshore tax avoidance that companies engage in. Unfortunately, the panel of witnesses for today’s hearing is largely made up of representatives of various major corporations that are beneficiaries of the loopholes in our current corporate tax laws. Given this, it seems likely that these panelists will not push for a fairer corporate tax code, but rather a code that allows them to avoid even more taxes and incentivizes moving more jobs offshore.

The biggest tax avoider represented at the hearing is AT&T, which received $38 billion in tax breaks over the past eight years, meaning that it received more tax breaks than any other Fortune 500 company during that time. Over the past 10 years, the company managed to pay an average federal income tax rate of just 11.3 percent, less than a third of the statutory rate of 35 percent. In 2011, it managed to pay nothing in federal income taxes, despite earning $12 billion in profits.

Read the full blog

World Gathers at UN, But Stymies UN’s Role in Tax and Transparency

Financial Transparency Coalition, May 24, 2017

Government negotiators, members of civil society and the private sector met in New York this week to follow up on the United Nation’s Financing for Development commitments. But despite the continued drain on economic development caused by illicit financial flows—and repeated scandals exposing financial secrecy— the week’s outcome document falls woefully short.

“The final document seems to relegate the UNECA High Level Panel Report on Illicit Financial Flows to a mere footnote,” said Jason Braganza, Deputy Executive Director of Tax Justice Network – Africa. “This report is the most definitive work on the issue to ever come out of the UN, yet member states can’t even officially welcome its findings.”

Read the full press release


Where Should We Make the Rules? A Look at How the UN Can Help Tackle IFFs

Financial Transparency Coalition, May 19, 2017

By Pooja Rangaprasad

Just shy of two years since the 3rd Financing for Development Conference was held in Addis Ababa, governments, civil society and policymakers will come together again. But rather than set new ambitions, we’ll be following up on the commitments of the past.

The Financing for Development Follow-Up Forum takes place at the United Nations headquarters from 22-25 May and the aim is to see how we’re doing in regards to financing development, including mobilizing domestic resources. With curbing illicit financial flows so key to unlocking desperately needed resources, it’s an apt time to take stock of what governments have committed to so far, and what remains to be done.

Read the full blog

German Parliament Votes to Put the Brakes on Transparency

Financial Transparency Coalition, May 19, 2017

Amid a growing worldwide movement for beneficial ownership transparency, Germany’s lower house of parliament passed a severely weakened bill on company ownership on Thursday night. The bill, meant to transpose the European Union Anti-Money Laundering Directive into German law, would keep the country’s register closed, only offering data to investigative authorities and organizations deemed by the government to have a ‘legitimate interest’ in the information. The bill now goes to Germany’s upper house of parliament for a final vote.

Read the full press release

Issues in the News

Incorporation Transparency


U.S. Lawsuit Links $2.2 Billion Deal to Malaysian Scandal

Fox Business, June 12, 2017

By Tom Wright, Justin Baer and Bradley Hope

U.S. authorities are investigating the $2.2 billion purchase of a U.S. energy company by a Middle Eastern government investment fund that was arranged by Goldman Sachs Group Inc. and netted one investor a $300 million windfall in less than a week, according to a government lawsuit and people familiar with the investigation.

Investigators allege that the investor was an important player in the scandal involving Malaysian government-investment fund 1Malaysia Development Bhd., or 1MDB. Goldman earned hundreds of millions in fees arranging $6.5 billion worth of bond deals for 1MDB.

Read the full article

HSBC Partners With AI Startup To Combat Money Laundering

Reuters, June 1, 2017

By Anna Irrera

HSBC Holdings Plc has partnered with Silicon Valley-based artificial intelligence startup Ayasdi Inc to automate some of its compliance processes in a bid to become more efficient.

The banking group is implementing the company’s AI technology to automate anti-money laundering investigations that have traditionally been conducted by thousands of humans, the bank’s Chief Operating Officer Andy Maguire said in an interview last week.

Read the full article

Fed Fines Deutsche Bank For Anti-Money Laundering Failures

CNBC, May 30, 2017

The Federal Reserve on Tuesday said it had fined Deutsche Bank AG $41 million for failing to ensure its systems would detect money laundering regulations and it said the lender agreed to increase its controls.

The New York Fed found that the German bank had faulty systems to detect suspicious transactions between 2011 and 2015, the central bank said in its filing.

Read the full article
Wall Street Journal article


Economists Say The Ultra-Wealthy Are Dodging Taxes Far More Than We Think

The Quartz, May 31, 2017

By Tim Fernholz

A spate of massive leaks showing the inner-workings of global tax evasion has given the public a window into how the super-wealthy—including celebrities, politicians, and criminals—leverage the globalization of finance to hide their wealth from the authorities.

But the leaks, which encompass just one Panamanian law firm, Mossack Fonseca, and one Swiss bank, HSBC Switzerland, offer only a small peek at these illicit flows. Can we use this data to make a general observation about the prevalence of tax avoidance?

Read the full article
Press Herald article
The Guardian newspaper

Tax evaders exposed: Why the super-rich are even richer than we thought  

The Guardian (Op-Ed), 14 June 2017

Analysis of a massive trove of data – much of it leaked from tax havens – suggests that inequality levels across the world should be revised upwards dramatically

By Annette Alstadsæter, Niels Johannesen and Gabriel Zucman

The statistics on inequality – those used, for instance, in Thomas Piketty’s bestseller, Capital in the Twenty-First Century – only include the income and wealth the taxman sees. So how high is inequality when also accounting for what he doesn’t see? Recent leaks from tax havens suggest the gap between the rich and the rest is even wider than we think.

Read the full article

This Is How the Biggest Companies Cheated on Taxes in 2016

Alternet, May 30, 2017

By Paul Buchheit

Donald Trump wants to cut what some call the “highest corporate tax rate in the world.” The tax cut will, according to Treasury Secretary Steve Mnuchin, “pay for itself with economic growth.”

Two delusions in one. The realities are far different for anyone who actually considers the facts. And some of the facts about 2016 tax avoidance are shocking and depressing. For example, two of the big banks (JP Morgan and Bank of America) together underpaid their taxes by more than Trump’s proposed $10.6 billion education cuts, which would eliminate or reduce after-school programs, work-study programs, state grants, teacher training, arts programs, and physical education.

Read the full article

Wells Fargo Found Liable In Abusive Tax Shelter Scheme

Forbes, May 26, 2017

By Robert W. Wood

After its fake account scandal, the hits keep coming for Wells Fargo. Now, Wells Fargo has been found liable in federal court for a 20% IRS negligence penalty in connection with an abusive tax shelter. Wells had claimed $350 million of foreign tax credits based on a tax shelter known as Structured Trust Advantaged Repackaged Securities or STARS. Last year, a Minnesota jury verdict nixed the tax credits Wells had claimed, concluding that the transaction lacked both economic substance and a non-tax business purpose. This trial was the second, this time determining if the smoke and mirrors STARS transaction had economic substance.

Wells Fargo contended that STARS was a single, integrated transaction that resulted in low-cost funding. The jury didn’t buy it, finding that in reality, STARS was really two economically distinct and independent transactions: a loan and a trust. Regarding the loan, the jury found that Wells Fargo entered into the loan solely for tax-related reasons. Regarding the trust, the jury found that it had no reasonable potential for pretax profit. Besides, the jury found that Wells Fargo entered into the trust structure solely for tax reasons.

Read the full article