News & Events

Just the FACTs: October 18, 2016

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.

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State of Play

There’s been a lot of talk recently about how the tax system is rigged.  More and more we are seeing that wealthy individuals and powerful multinational companies are able to play by their own set of rules.  According to a new report by FACT members Citizens for Tax Justice (CTJ), the Institute on Taxation and Economic Policy (ITEP), and U.S. PIRG, Fortune 500 companies are now holding $2.5 trillion offshore. By shifting their profits to tax havens, these U.S. companies have been able to avoid $718 billion in taxes. The legal loopholes that allow these companies to avoid their taxes are simply unavailable to average taxpayers and small businesses, who can’t afford to hire the lawyers and accountants to move money through shell companies created in tax havens.

The U.S. Treasury Department took a modest step toward countering corporate tax avoidance Thursday night by issuing a new rule aimed at preventing a tax dodging technique known as “earnings stripping.” While FACT members are still in the process of reviewing the 518-page measure, the rule is estimated to close about $600 million per year in offshore tax avoidance loopholes.

Nevertheless, the report from CTJ, ITEP, and U.S. PIRG shows us that the offshore world of tax avoidance is growing exponentially.  Last month, the FACT Coalition released a report that showed how the increasing dependence on tax avoidance as a means to inflate profits was a serious risk to investors.  Shortly thereafter, nine groups—including the FACT Coalition—released a report that analyzed the more than 26,000 comments received in response to the SEC’s concept release. One of the findings of the study—which was also followed by an event—was that almost all of those comments asked for more disclosure on tax and none of them opposed such disclosures.  Morris Pearl, former managing director at BlackRock Inc., eloquently described the concerns investors have with the current lack of disclosure in an op-ed in The New York Times.  One clear risk he explained was that “it is often impossible for investors to determine how healthy a company really is and whether or not the profits are merely a reflection of aggressive tax planning.”

The secret offshore world at the heart of these tax avoidance schemes continues to be exposed.  “First there was ‘Swiss Leaks.’  Then ‘Lux Leaks’ and the ‘Panama Papers.’  Now we have the ‘Bahamas Leaks’ a new trove of leaked documents published by the International Consortium of Investigative Journalists (ICIJ)—the group that brought the world the “Panama Papers” in April.  The ‘Bahamas Leaks’ highlights the complex web of companies and affiliates used to launder money from corrupt foreign leaders, executives and the lawyers and bankers who facilitate the transactions.

One common theme in all of these leaks—anonymous companies.  In a blog, Nate Sibley of the conservative Hudson Institute confronts what he calls the “irrational contradiction” of the U.S. working to root out global corruption while simultaneously being the easiest place in the world to set up an anonymous company.  Sibley argues that our complicity in the crimes of Kleptocrats “poses perhaps the single greatest challenge to U.S. national security today.”  Adding that in order  to prevent them from looting or destabilizing their countries we need to stop offering them a safe haven for their “dirty cash.”

From the FACT Coalition and Its Partners

Incorporation Transparency

Kleptocracy, Inc.: How America Enables Global Corruption

Hudson Institute, October 10, 2016

By Nate Sibley

How should the U.S. deal with the growing number of regimes that are not only corrupt, but using corruption as their guiding principle of government? It is an increasingly urgent question. From rogue states to terrorism, insurgencies, cyberattacks, and disinformation, it is kleptocracy, or “rule by thieves,” which fuels the salient geopolitical threats of our time. Failure to recognize the true nature of these regimes, let alone our own complicity in their crimes, poses perhaps the single greatest challenge to U.S. national security today.

Read the full article


Tackling the Opioid Epidemic Through Corporate Transparency

FACT Coalition, September 23, 2016

By Waiyan Tse

Opioids are killing more Americans than ever before.

On average, 78 people die from opioid overdose everyday. From 1999 to 2014, more than 165,000 lives were lost due to overdoses related to prescription opioids. This crisis is being described as “one of the worst public health epidemics” in U.S. history.

The prevalence of opioid abuse is pushing families apart, tearing at the fabric of our communities, and killing our loved ones. So what or who is to blame for this prevalence? What is allowing opiates to be transported into the heart of our communities? There are a number of reasons, but a recent report published by Fair Share Education Fund reveals one of the less-discussed—yet systemic—drivers of opioid abuse: anonymous shell companies.

Read the full blog


New “Bahamas Leaks” Further Evidence For Ending Anonymous Companies Following “Panama Papers”

FACT Coalition, September 21, 2016

By Clark Gascoigne

A new trove of leaked documents published today by the International Consortium of Investigative Journalists (ICIJ)—the group that brought the world the “Panama Papers” in April—continues to demonstrate the harms facilitated by anonymous shell companies.

Read FACT’s press release
U.S. PIRG press release
Oxfam International press release
Global Witness press release
Transparency International press release
Jubilee USA press release
Read The Guardian’s article
Visit ICIJ’s Bahamas Leaks page


Broad Coalition Calls for Greater Disclosure Requirements from the SEC

FACT Coalition, AFL-CIO, Americans for Financial Reform, Center for American Progress Action Fund, Ceres, ICAR, Patriotic Millionaires, Public Citizens, US SIF, September 20, 2016

By Clark Gascoigne

Nine groups—the AFL-CIO; Americans for Financial Reform; the Center for American Progress; Ceres; the Financial Accountability & Corporate Transparency, or FACT, Coalition; the International Corporate Accountability Roundtable; Patriotic Millionaires; Public Citizen; and US SIF: The Forum for Sustainable and Responsible Investment—are joining together to urge the U.S. Securities and Exchange Commission, or SEC, to strengthen corporate disclosure requirements. The call for greater disclosure comes in response to SEC Chair Mary Jo White’s Disclosure Effectiveness Initiative to identify and reform such requirements, and the SEC’s Concept Release, which asked for public feedback on the frequency and formats of companies’ disclosures, accounting practices and standards, and the substantive areas that should be disclosed.

Read FACT’s press release
Center for American Progress press release
Towards a Sustainable Economy report
The Hill article


G20 Finance Ministers Discuss Anonymous Companies

Jubilee USA, October 3, 2016

G20 Finance ministers and central bank heads meet on October 6 to discuss economic growth and anti-corruption measures. The meeting comes ahead of the International Monetary Fund and World Bank Annual Meetings in Washington. The G20 meeting will review corruption facilitated by the use of “anonymous shell companies.” Some of these companies are linked to crime, theft and money laundering.

Read the full press release
Read Reuters article


How Secret Company Ownership is a Risk to Business and Investors

Global Witness, September 27, 2016

By Eryn Schornick

When the criminal and corrupt hide behind secret or anonymously-owned companies, it makes it very hard for shareholders to manage all types of risk. This is because sometimes it can be nearly impossible to identify the real people who own and control companies (also known as “beneficial owners”).

I’m pleased to have been interviewed by Principles for Responsible Investment’s (PRI) Olivia Mooney for the podcast segment, Corporate Ownership Transparency (listen to the podcast here) where we discussed the financial and non-financial risks, such as legal and reputational risks, that anonymously owned companies pose to businesses and investors. Company secrecy and these risks can damage the global economy, and hurt unwitting investors and pension fund holders.

Read the full blog


A Growing Call From Business for Company Ownership Transparency

Transparency International, September 22, 2016

By May Miller-Dawkins

With the release of its latest Economic Contribution and Payments to Governments Report today, BHP Billiton becomes the latest in a growing list of companies and business leaders highlighting the importance of company ownership transparency, and starting to walk the talk by being transparent about elements of their own company structures, entities and ownership.

Read the full blog
Read Medium’s article


Coalition Welcomes Rule To Stem Multinational Corporate Tax Avoidance

FACT Coalition, October 14, 2016

Treasury Finalizes Anti-Inversion Rules Tackling “Earnings Stripping”

The U.S. Department of the Treasury finalized a long-awaited rule Thursday aimed at countering multinational tax avoidance, in a move welcomed by the Financial Accountability and Corporate Transparency Coalition (FACT Coalition). Specifically, the rule attempts to reduce the incentive for companies to invert by addressing an abusive practice known as “earnings stripping” — whereby multinational companies load up their U.S. subsidiaries with foreign debt and charge exorbitant fees and interest on the debt in order to reduce their U.S. taxable income.

Read the full press release

Groups Push Accounting Body on Multinational Tax Transparency

FACT Coalition, September 30, 2016

A broad alliance of organizations and coalitions submitted comments to the Financial Accounting Standards Board (FASB) today—urging the body to require multinational companies to be more transparent about their tax practices.  FASB, the private body which sets financial accounting and reporting standards in the United States, has suggested a number of changes to increase the disclosure of foreign tax and income information by companies in their public filings.

Read the full press release
Institute on Taxation and Economic Policy comment letter to FASB
Read CTJ’s blog

 Coalition Welcomes New Tax Transparency Bill

FACT Coalition,  September 22,  2016

Rep. Mark Pocan (D-WI) today introduced a new bill, which would shine a light on the offshore tax practices of multinational companies.  The Corporate Transparency and Accountability Act of 2016 (H.R.6126) would require publicly-traded multinational companies to report in their disclosure statements to investors information about revenues, profits, taxes, and certain operations on a country-by-country basis.   The Financial Accountability and Corporate Transparency Coalition, or FACT Coalition, welcomed the move in a letter to the bill’s sponsor.

Read the full press release
Read FACT’s letter in support of the legislation
Read CTJ’s blog
Global Financial Integrity press release
Accounting Today article
Read US PIRG press release
Read Rep. Mark Pocan’s press release
Read Urban Milwaukee article

Let’s Make Them Pay! — A Conversation With the Leading Crusader Against Corporate Tax Evasion

Salon (FACT), September 17, 2016

By Angelo Young

Under current rules, companies can lump the financials for all their global operations into one reporting basket, which can mask their tax burden for a specific country. It wasn’t until Australian tax authorities launched an investigation into Chevron that the world learned a subsidiary of the California-based behemoth paid in 2014 $248 on $1.7 billion in profit earned Down Under. Under FACT’s proposal, Chevron would have been required to disclose that in its annual report.

Country-specific disclosures, Kalman argues, are vital to shareholder interests. Shareholders should have a right to know how much risk a company is taking in pushing the boundaries of legal tax accounting. Kalman spoke with Salon recently about his call for regulatory action. This interview has been edited for clarity.

Read the full article

 Offshore Shell Games 2016

U.S. PIRG, Citizens for Tax Justice, and the Institute on Taxation and Economic Policy, October 4, 2016

U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to paying taxes. Corporate lobbyists and their congressional allies have riddled the U.S. tax code with loopholes and exceptions that enable tax attorneys and corporate accountants to book U.S. earned profits to subsidiaries located in offshore tax haven countries with minimal or no taxes. The most transparent and galling aspect of this is that often, a company’s operational presence in a tax haven may be nothing more than a mailbox. Overall, multinational corporations use tax havens to avoid an estimated $100 billion in federal income taxes each year.

FACT Coalition press release
U.S. PIRG press release
Citizens for Tax Justice executive summary
The New York Times article
Common Dreams article
Opposing Views article
Read the full report

 Darrin Brown Discusses Global Tax Issues

CCTV America (Jubilee USA), September 20, 2016

Jubilee’s Policy Director, Darrin Brown, discusses the implications of multinational companies avoiding taxes. In the interview with the CCTV America, Darrin, discusses how corporate tax avoidance contributes towards the growth of social and economic inequalities in all countries, especially the developing ones.

Watch the youtube clip

Corporate Tax Chartbook: How Corporations Rig the Rules to Dodge the Taxes They Owe

Americans for Tax Fairness and Economic Policy Institute, September 19, 2016

By Frank Clemente, Hunter Blair, and Nick Trokel

In recent years, corporate profits have reached record highs, and so too has the amount of untaxed profits U.S. corporations have stashed offshore: $2.4 trillion. And it is estimated corporations could owe as much as $700 billion on those profits. In short, corporations are dodging more and more of their tax responsibilities.

While the statutory tax rate on corporate income is 35 percent, estimates of the rate corporations actually pay put the effective rate at about half the statutory rate. Driving this divergence between what corporations are supposed to pay and what they actually pay is a combination of offshore profit shifting and tax avoidance. Multinational corporations pay taxes on between just 3.0 and 6.6 percent of the profits they book in tax havens.

Read the full report, ATF page/EPI page
ATF press release
CBS News Money watch article
CNBC News article
Columbus Dispatch article  

Issues in the News

Incorporation Transparency

Panama: The Hidden Trillions

The New York Times, October 27, 2016

By Alan Rusbridger

In a seminar room in Oxford, one of the reporters who worked on the Panama Papers is describing the main conclusion he drew from his months of delving into millions of leaked documents about tax evasion. “Basically, we’re the dupes in this story,” he says. “Previously, we thought that the offshore world was a shadowy, but minor, part of our economic system. What we learned from the Panama Papers is that it is the economic system.”

Read the full article


Thomson Reuters Launches TRAC to Tackle Trade Based Money Laundering

Finance Magnates, October 11, 2016

By Rosemary Barnes

Thomson Reuters, a source of news and information for professional markets, has today announced the launch of TRAC, a new anti-money laundering solution to combat trade based money laundering (TBML) and drive transparency and efficiency across trade finance.

TRAC which stands for “Trade Finance, Regulations, Audit and Control” is a first-of-its kind end-to-end solution offering holistic risk management of trade finance while satisfying the Monetary Authority of Singapore and Hong Kong Monetary Authority’s recently developed guidelines on combating TBML.

TRAC combats risks at different stages of the trade finance life-cycle. From pre-trade, execution to post-trade, it performs screening of vessels and third parties, tracks shipments, provides regulatory reporting and monitors transactions.

Read the full article


Delaware’s Image Problem

Delaware Online, September 19, 2016

By Delaware State Representative, John A. Kowalko

Delaware is a pro-business state. It is relatively simple to form a company. We have no corporate income tax, and we even have special courts to handle corporate disputes. These courts have provided for an unmatched experience and understanding of the issues involved in commercial enterprises. These factors provide our state with a competitive advantage that has made us the choice for legal residence of nearly two-thirds of Fortune 500 companies.

However, recently our state’s reputation has suffered because of policies wrongly considered to be adding to our advantage. Some public officials have refused to challenge the practice of allowing anonymous shell companies to form in Delaware. The risk to Delaware’s reputation because of these practices threatens to erode Delaware’s standing in the global corporate community. The threat becomes more obvious when one considers that even the ethically-challenged nation of Brazil has blacklisted Delaware companies.

Read the full article


U.S. Senate’s Top Democratic Tax Lawmaker Targets Corporate Offshore Profits

Reuters, September 26, 2016

By David Morgan

The U.S. Senate’s senior Democratic tax law writer says he will rip up a root of corporate tax avoidance if his party wins Senate control in November, targeting trillions of dollars in tax-deferred profits being held abroad by U.S. companies.

In an interview with Reuters, Oregon Senator Ron Wyden said he wants to put an end to a Kennedy-era law that lets U.S. corporations indefinitely hold profits from active business operations offshore without paying U.S. tax on them.

Read the full article

 How Companies Like Apple Dodge Taxes and Their Own Investors

The New York Times, September 21, 2016

By Morris Pearl

As an investor, one who has been entrusted with helping to safeguard other people’s money for years, I value the high degree of disclosure required from American public companies. Corporations and the world in which they operate change every day, so investors need to know the risks their money faces.

Read the full op-ed


Multinational Tax Avoidance Crackdown Goes Far Beyond Apple

The Wall Street Journal, September 20, 2016

By Stephen Wilmot

Forget Apple’s $14.5 billion spat with the European Commission over historic Irish taxes. An international reform project is targeting up to $240 billion a year it says slips through loopholes between countries’ tax codes—a problem sometimes dubbed “double non-taxation.”

Led by the Organization for Economic Cooperation and Development, the initiative is called “Base Erosion and Profit Shifting,” or BEPS, after the kind of corporate-tax practice it seeks to subdue. Progress isn’t as far advanced as it is on the OECD’s parallel project to clamp down on private-banking tax havens, but it is already showing signs of chivying companies into action.

Read the full article