Eduardo Morgan Jr.

From The Journal of Economic Perspectives

By Jason Sharman

Fall 2010

Abstract.

The last few years have seen an international campaign to ensure that the world’s financial and banking systems are “transparent,” meaning that every actor and transaction within the system can be traced to a discrete, identifiable individual. I present an audit study of compliance with the prohibitions on anonymous shell companies. In particular, I describe my attempts to found anonymous corporate vehicles without proof of identity and then to establish corporate bank accounts for these vehicles. (Transactions processed through the corporate account of such a “shell company” become effectively untraceable—and thus very useful for those looking to hide criminal profits, pay or receive bribes, finance terrorists, or escape tax obligations.) I solicited offers of anonymous corporate vehicles from 54 different corporate service providers in 22 different countries, and collated the responses to determine whether the existing legal and regulatory prohibitions on anonymous corporate vehicles actually work in practice. To foreshadow the results, it seems that small island offshore centers may have standards for corporate transparency and disclosure that are higher than major OECD economies like the United States and the United Kingdom.
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The G20 and Tax Haven Hypocrisy
Thursday, April 02, 2009
Mar 26th 2009 | BERLIN
From The Economist print edition
Big economies are leaning on offshore tax havens. But greater abuse may be taking place at home
MONEY launderers are moved by greed, unlike Jason Sharman, a political scientist at Australia’s Griffith University. Yet with a budget of $10,000 and little more than Google (and the ads at the back of this paper), he showed how easy it was to circumvent prohibitions on banking secrecy, forming anonymous shell companies and secret bank accounts across the world. In doing so he has uncovered an uncomfortable truth for many of the leaders of Group of 20 nations meeting on April 2nd to discuss, among other things, sanctions against offshore tax havens. The most egregious examples of banking secrecy, money laundering and tax fraud are found not in remote alpine valleys or on sunny tropical isles but in the backyards of the world’s biggest economies.
Panoramic ImagesWyoming, the Switzerland of the Rocky Mountains At issue is not banking secrecy as the Swiss once knew it, where discreet men in plush offices promised to take the names of their clients to the grave. This is a more insidious form of secrecy, in which authorities and bankers do not bother to ask for names, something long outlawed in offshore tax centres such as Jersey and Switzerland but which has persisted in America. For shady clients, this is a far better proposition: what their bankers do not know, they can never be forced to reveal. And their method is disarmingly simple. Instead of opening bank accounts in their own names, fraudsters and money launderers form anonymous companies, with which they can then open bank accounts and move assets.
Nowhere is this more prevalent than in America. Take Nevada, for example. Its official website touts its “limited reporting and disclosure requirements” and a speedy one-hour incorporation service. Nevada does not ask for the names of company shareholders, nor does it routinely share the little information it has with the federal government.
There is demand for this ask-no-questions approach. The state, with a population of only 2.6m, incorporates about 80,000 new firms a year and now has more than 400,000, roughly one for every six people. A study by the Internal Revenue Service found that 50-90% of those registering companies were already in breach of federal tax laws elsewhere. A money-laundering threat assessment in 2005 by the federal government found that corporate anonymity offered by Delaware, Nevada and Wyoming rivalled that of familiar offshore financial centres. For foreigners, America is a particularly attractive place to stash cash, because it does not tax the interest income they earn. Thus with both anonymity and no taxation, America offers them all the elements of a tax haven.
Change may be coming in America, but slowly. In March Senator Carl Levin proposed a law forcing states to identify the beneficial owners of corporations. “For too long, criminals have misused US corporations to hide illicit activity, including money laundering and tax fraud,” said Mr Levin. “It doesn’t make sense that less information is required to form a US corporation than to obtain a driver’s licence.” Yet a similar bill introduced last year died a quiet death in committee. America is not the only rich nation Mr Sharman tested. He tried to open anonymous shell companies and bank accounts 45 times across the world. These were successful in 17 cases, of which 13 were in OECD countries. One example was Britain, where in 45 minutes on the internet he formed a company without providing identification, was issued with bearer shares (which have been almost universally outlawed because they confer completely anonymous ownership) as well as nominee directors and a secretary. All was achieved at a cost of £515.95 ($753).
In other cases Mr Sharman formed companies by providing no more than a scanned copy of his driving licence. In contrast, when trying to open accounts in Bermuda and Switzerland, he was asked for documentation such as notarised copies of his birth certificate. “In practice OECD countries have much laxer regulation on shell corporations than classic tax havens,” Mr Sharman concludes. “And the US is the worst on this score, worse than Liechtenstein and worse than Somalia.”

By Bruce Zagaris

Reprinted from Tax Notes Int’l, July 5, 2010, p.14

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By Carlos Ernesto González Ramírez

Some people lack the courage to attempt great things, or they shy away from situations that seem beyond their capability. Normally, these people do not even have the initiative to explore the limits of the opposition, a fear based solely on perception, rather than on a sober analysis of reality. These are the people history has dubbed the faint of heart.

Wikipedia states that “fear is an emotion characterized by an intense, usually unpleasant feeling, caused by the perception of danger, real or imaginary, present, future or even past. It is a primary emotion that derives from the natural aversion to risk or threat, and can be seen both in both animals and humans.”

The great empires of history have always exploited this feeling, and these people, to impose their will without having to take any type of effective action to achieve their goals. With the mere appearance (or threat) of action, they make the fainthearted panic and subject them to their imperial designs. This is the tactic employed by the United States, through the OECD, against Panama, in order to force our country to submit to its interests and end the Panamanian financial center, which competes with the financial centers of the United States in its own “backyard”. Fortunately, to date, Panama has proven it is not fainthearted, maintaining a firm position in defense of our interests (as it has throughout its historiography).

Since the debut of the OECD blacklists, Panama has done nothing but grow: in its financial center, in its services exports, and in the level of foreign direct investment in our nation. In other words, to date, the OECD has been a paper tiger, unable to affect Panama.

That said, and with a clear understanding that, as a nation, like it or not, we must maintain relations with other governments, Panama has the responsibility to be a good world citizen, however, keeping the national interest above all else. For this reason, Panama has pursued treaties that avoid double taxation as the most appropriate mechanism to comply with the requirements of those nations that have adopted unilateral measures against our country (measures that have had almost no impact, as I pointed out).

Therefore, the Panamanians should not be concerned with what the OECD says or does not say, for, to the extent we advance more of these treaties, the effectiveness of this private organization of powerful nations, and new instrument of imperial domination, will decrease even more than it has since 2000, when it labeled Panama a “tax haven”.

To this we must add the undeniable fact that the measures that some countries have taken against Panama are contrary to international law and their obligations regarding Panama before the WTO. In this issue, I must admit, our governments have behaved as the Shakespearean fainthearted.

Instead of asserting our rights, for a mistaken concept of international relations, we have done what no other country does: renounce the civilized and accepted international mechanisms to defend our economic interests. The irony is that this waiver is specific to the most important activity in terms of its participation in our overall economic architecture (financial center), but did not pertain to banana exports or the Colon Free Zone, two cases in which Panama has taken the European Union and Colombia to WTO courts (winning both times).

This, however, may soon change. The National Strategy for the Defense of International Financial Services adopted by the Government includes the initiation of actions within the WTO. If Panama initiates a WTO suit against a discriminating country and triumphs, as the law portends, then the OECD threats will eventually fade into the history of failed imperial measures, for they were addressed at those with the courage and backbone to defend the interests of their nation.

It should be noted that, beyond our rights, freedom and the defense of individual liberties is on our side. Panama, with the performance of its financial services and jurisdictional exports, has facilitated international business, providing protection and a risk-free environment to those who are victims of their confiscatory and unfair governments. In other words, it has preserved freedom.