By Alvaro Tomas, lawyer of MMG Trust, part of the Morgan & Morgan Group

With the deal, announced on Sunday, the Minneapolis-based Medtronic becomes the latest — and biggest — United States company to try to change its tax domicile through a so-called inversion. Such deals are attractive to American companies seeking a lower corporate tax rate (Gelles,David, New York Times,16^th June, 2014).*

With all its FATCA and coercion of foreign banks and financial institutions to act as their collection agents, or even worse as snitches, the United States,  Internal Revenue Service cannot  ignore all the legally accepted ways companies are able and entitled to lower their tax rates. Much as the government has the right to collect what it deems correct, the private sector has the same right to use the law in its favor, regardless of what the government may think is morally acceptable.  While the government can only do what the law permits, the private sector can do whatever is not expressly prohibited by law.   But the United Sates and the OCDE countries, in their zealous and unjust attacks on sovereign countries, constantly overstep the boundaries of international and commercial law. Yet, when their own companies like Google, Apple and now Medtronic, use totally legal maneuvers to mitigate their fiscal liabilities, Angel Gurría of the OCDE says nothing and only   Minnesota Senator Al Franken, dares speak his mind:

“This proposed deal could bring as many as a thousand jobs to Minnesota and increase investment in our state, which would be great,” Mr. Franken said. “That said, deals that result in companies reincorporating abroad often mean that they can shelter profits overseas, costing taxpayers billions of dollars — which I find troubling. This needs careful scrutiny, and I plan to take a very close look at the specifics in the coming days.”

You see, Medtronic has found a legal and, yes, very moral way to pay less taxes in the United States and free all that cash made on foreign operations: it is buying an Irish company and changing its tax domicile.  Franken can speak and scrutinize all he wants, the U.S. holds it as legal.

There is more than US$2 trillion in the coffers of American companies who have chosen NOT to pay taxes in the United States. It is as simple as that. Only a few like eBay, that repatriated US$9 billion few years ago, have done the “moral” thing. In view of this reality and the ever-changing goal posts in this “everybody should help us collect taxes” saga, US lawmakers are now considering a tax holiday whereby these American multinationals can repatriate their cash without paying U.S. taxes.

Well, what would the IRS and Angel Gurría think if we, small but sovereign countries, declare a permanent tax holiday? Why doesn´t Gurría force the European Union to penalize Ireland for attracting big multinationals to its country on the sole basis of a more beneficial tax regime?  Isn’t that what all the countries are trying to do: compete for the Foreign Direct Investments (FDI) which create jobs and generate development? Panama is no different from Ireland. Yet Gurría and the OCDE cartel, taking orders from their G-7 masters, want to impede Panama’s right as a sovereign country to attract the Medtronics of the world by slapping us with pejorative  labels and including us on tax haven lists.  This is  not only morally wrong but it subverts the concept of a level playing field  which our small but proud nations require to compete for the FDI and keep growing.

* Source:https://dealbook.nytimes.com/2014/06/16/in-medtronics-deal-for-covidien-an-emphasis-on-tax-savings/?_php=true&_type=blogs&partner=rss&emc=rss&smid=tw-nytimes&_r=0

By Geoff Cook

Published on Jersey Finance

Wednesday 28^th May 2014

An interesting post appeared recently on the White House Blog signalling moves by the US to capture beneficial ownership details and to report this information to the IRS. This would, if enacted, be a significant and helpful move by the US in fighting financial crime and the illicit use of shell companies.

As this is such a significant development in fighting cross border financial crime I repeat the blog in its entirety 

“Every year, money launderers, corrupt officials, tax evaders, and drug lords exploit legal loopholes to create anonymous shell companies to hide millions of dollars offshore. President Obama strongly believes that we cannot allow these abuses to continue, both in other countries and here in the United States. That’s why he has put forward a proposal to close these loopholes with the goal of making anonymous shell corporations a thing of the past under U.S. law. 

The White House announced last month as part of the President’s budget a legislative proposal to help law enforcement investigate the use of shell companies that are set up to engage in illegal activity, including the laundering of illicit proceeds. The President’s proposal would require all companies formed in any state to obtain a federal tax employee identification number. This proposal would require the Internal Revenue Service to collect information on the beneficial owner of any legal entity organized in any state, and would allow law enforcement to access that information. This proposal builds on the leadership of Senator Carl Levin (D-MI), who has long been an advocate for shuttering these tax loopholes and promoting greater corporate transparency in the United States and abroad.  

In addition, the proposal would permit the IRS to share beneficial ownership information with law enforcement officials to identify and investigate criminals who form and misuse U.S. corporate structures to launder criminal proceeds and finance terrorism through the international banking system. Such sharing would advance criminal investigations and successful prosecution of money laundering and terrorist financing cases and assist in identifying criminal proceeds and assets.    

President Obama has been a longtime supporter of corporate transparency. As a Senator, he supported Senator Levin’s proposal to identify and collect beneficial ownership information at the time a company is formed. And most recently, he and his fellow G-8 leaders agreed at the June 2013 summit in the United Kingdom that a lack of knowledge about who ultimately controls, owns, and profits from companies enables tax evasion and money laundering across borders. Leaders at that time committed to take steps to require companies to obtain and hold information on who really owns and controls them, also known as their beneficial ownership, and to ensure that this information is available in a timely fashion to law enforcement. The United States, in its June 2013 Action Plan for Transparency of Company Ownership and Control, committed to advocating for comprehensive legislation to require identification and verification of beneficial ownership information. 

The proposal released in the budget is the next step in advancing greater transparency and anticorruption efforts in the United States. We look forward to working with Congress to draft the legislation and get this important proposal signed into law.”

Caroline Atkinson is the Deputy National Security Advisor for International Economics

The largest study into the illicit use of shell companies ever undertaken was completed by eminent US and and Australian Academics and documented in their 2014 publication; Global Shell Games. Despite being the largest independent study of its kind you will not see this research in the tax lobbying pages of the blogosphere nor in the extensive campaigning material generated by the NGO community.

The Global Shell Games study exposes weaknesses in fighting financial crime, not in Jersey;  found to be 100% compliant, but in large countries such as the USA, Britain and France. The study despite being the largest and most comprehensive ever undertaken is ignored by the tax lobby and campaigning NGOS, as it wrecks their illicit capital flow theories and exposes their finger pointing ‘research’ as nothing more than publicity seeking propaganda.

The main findings of the Global Shell Games report were:-

• Nearly half (48 percent) of all replies received did not ask for proper identification, and 22 percent did not ask for any photo identity documents at all to form a shell company.
• Against the conventional policy wisdom, those selling shell companies from tax havens were significantly more likely to comply with the rules than providers in OECD countries like the United States and Britain. 
• providers in poorer, developing countries were also more compliant with global standards than those in rich, developed nations.   
• Corporate service providers were significantly less likely to reply to potential terrorists and were also significantly less likely to offer anonymous shell companies to customers who are possibly linked to terror. However, compared to the placebo a significantly decreased share of firms replying to the terrorist profile also failed to ask for identity documentation or refused service.   

Controversy around corporate transparency isn’t a new phenomena, but what is new is the US taking action to tackle the problem by making a commitment to capture more information on the real owners of companies, this is to be welcomed. Interestingly though, no mention of public registries, so it seems that the UK and France will be the only G20 countries to go down this road.

In Jersey we have been capturing beneficial ownership information on a corporate registry for over a decade and this information is available to law enforcement agencies. Jersey has been cited as an exemplar in this respect by the World Bank.

It is time for others to catch up and do more, and in this respect the US government is setting a good example to the international community and to it’s own states.

By Richard Rahn

The Washington Times

Monday, February 17, 2014

 It’s foolish to fund organizations that demand even more money

If you became aware that the advice you were receiving from your economic advisers was causing you to get poorer rather than richer, how long would you keep them?

Among the general public, the International Monetary Fund (IMF), the World Bank and their lesser known younger sibling, the Organization for Economic Cooperation and Development (OECD), had reputations far exceeding their actual achievements.

The World Bank’s star was tarnished many years ago because of its multitude of program failures, crony capitalism and leadership scandals.

The IMF had its wings clipped this past month when Congress refused to go along with the administration’s “strenuous pleas to increase the IMF’s discretionary-loan budget,” as described by former Undersecretary of the Treasury John Taylor.

The IMF had reneged on a previous agreement of how the funds were to be used. Again, Mr. Taylor noted, the agreement “barred the IMF from making new loans to countries with unsustainable debts.”

“Such loans effectively bailed out creditors, raised the debt burden on a country’s citizens, encouraged irresponsible fiscal policy, increased risk taking, and thereby created a crisis atmosphere. Then the Greek sovereign-debt crisis emerged in 2010. Rather than sticking to the rule — no loans to a country with unsustainable debt — the IMF simply changed the rule.”

The Greek economy sank under all of the new debt, and the country was soon forced into a debt rescheduling. The IMF had given in to political pressure, undermining its effectiveness. Congress, quite correctly in Mr. Taylor’s judgment, applied a penalty.

The IMF has made many mistakes over the decades, but always had access to the pocketbooks of global taxpayers, particularly U.S. taxpayers, as it engaged in endless mission creep with little serious oversight.

Apologists for the organization claim it was just filling the potholes left by the governments of the developed countries and, of course, its client countries in the developing world.

The OECD was originally set up as an organization to promote trade among the developed countries and to build statistical databases. It has now morphed into an organization whose principal goal appears to be the collection of more taxes for its member governments.

Last week, Angel Gurria, secretary-general of the OECD, said it was the “duty” of international companies to stop employing tax-reduction strategies — aiming some of his comments directly at Apple and Google.

Mr. Gurria seems to think the purpose of business is to pay taxes. Not so. The purpose of a business is to maximize the returns to its shareholders by producing goods and services to meet the wants, needs and desires of its customers.

In fact, the officers of companies have a fiduciary responsibility to their stockholders to employ legal tax-minimization strategies to the extent they increase net profit.

Most tax economists view the corporate tax as one of the worst taxes, and many argue for abolishing it. Professor Reuven Avi-Yonah of the University of Michigan Law School, who has been a consultant both to the U.S. Treasury and the OECD, wrote that widespread support for a corporate-income tax comes from “the misguided belief that corporations bear the burden of the tax, while every economically literate person knows that taxes can only be borne by natural persons.”

Last month, mainstream economist Laurence Kotlikoff, in an article in The New York Times, described the results of a large-scale economic model that he had developed with colleagues through the nonpartisan Tax Analysis Center. “In the model, eliminating the United States’ corporate-income tax produces rapid and dramatic increases in American investment, output and real wages, making the tax cut self-financing to a significant extent.”

Mr. Gurria seems to be woefully ignorant of the destructive effects of high corporate-income tax rates. He also seems to be unaware of the considerable literature concerning the optimum size of government, which shows that most of his OECD member countries are spending far beyond the optimum amount.

Rather than berating companies for not paying “enough” taxes, Mr. Gurria should spend his energy and the resources of the OECD to reduce both destructive spending and taxing by governments, which would truly fulfill the OECD mission “of promoting policies to improve the economic and social well-being of people around the world.”

Most Apple and Google employees (and those of most other multinational corporations) work hard producing and developing new products that enhance the quality of life — and they pay taxes on their earnings.

Many OECD employees spend much of their time traveling first class around the world to attend conferences (on your tax dollars) — and their salaries are tax-free. Now that Congress has shown the courage to say no to the IMF, perhaps it will have the courage to stop supporting the OECD’s taxpayer-funded campaign to make us pay more in taxes.

I expect most Americans, if given a choice between paying higher taxes to support the OECD, or having more money to spend on Apple and Google products, would rationally pick the latter.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Read more: https://www.washingtontimes.com/news/2014/feb/17/rahn-being-taxed-for-bad-advice/?page=2#ixzz30P1eZbat

By Dan Mitchell

February 26, 2014

Time for another great moment in red tape.

I wrote a couple of weeks ago that banks treat customers poorly in part because of bad laws and regulations from Washington.

Money laundering laws were adopted beginning about 30 years ago based on the theory that we could lower crime rates by making it more difficult for crooks to utilize the financial system. There’s nothing wrong with that approach, at least in theory. But these laws have become very expensive and intrusive, yet they’ve had no measurable impact on crime rates. …politicians and bureaucrats have decided to double down on failure and they’re making anti-money laundering laws more onerous, imposing ever-higher costs in hopes of having some sort of positive impact. This is bad for banks, bad for the poor, and bad for the economy.

You may think that only cranky libertarians are unhappy about this system.

But that’s not the case. Three professors with expertise in criminology, justice, sociology, and public policy wrote a detailed assessment of policies on anti-money laundering (AML) and combating the financing of terrorism (CFT).

Given the establishment pedigree of the authors, the finding of the report are rather shocking. The report’s introduction hints that the whole apparatus should be called into question.

To date there is no substantial effort by any international organization, including the IMF, to assess either the costs or benefits of an AML/CFT regime.  The FATF system has proceeded as if  it produces only public and private goods, not public or private “bads” or adverse by-products  against which the “goods” have to be weighed.   The Fund staff itself has raised questions about whether its substantial investment in the 3rd round has yielded adequate returns. It is not known what value that investment produced for the FATF or the Fund’s core objectives.  There needs to be more open acknowledgement of actual and potential financial costs of AML/CFT controls, their potential misuse by authoritarian rulers, and possible adverse effects on populations that rely on remittances and the informal economy, as well as potential negative impacts on NGOs and parts of civil society.

And when you dig into the details of the report, you find some surprisingly blunt language.

Basically, there’s no evidence that these policies work, and lots of evidence that they impose real harm.

Benefits of the FATF AML/CFT system have not been demonstrated. Although there may be benefits known to international organizations, governments, regulators, and intelligence agencies, no systematic efforts have been made by the FATF network of IOs or countries or institutions to demonstrate benefits. …Standards and Methodology proceed as if the implementation of an effective AML/CFT regime delivers only public and private goods and imposes no public or private “bads.” This study has learned of no significant effort by any of the standard-setting or assessor bodies to undertake a cost-benefit analysis… Little consideration has been given, they say, to the costs of implementing an AML/CFT regime, and little evidence has been adduced to demonstrate that the costs produce commensurate benefits in their own or indeed in any other jurisdiction. …Costs are substantial whether construed broadly or narrowly. …Moreover, an AML/CFT regime generates substantial costs on the financial sector in terms of money-laundering compliance staff and software procurement. Entire industries have grown around consulting and advising businesses and governments on AML/CFT compliance… Particularly strong views were expressed by bankers about excessive costs of misplaced demands upon the financial industry for surveillance of customers.

The report notes that poor people are among the biggest victims.

AML laws and regulations may adversely affect access of marginal groups whom FATF documents describe as subject to “financial exclusion” from the formal financial system. The more onerous the burdens placed on individuals, companies, and NPOs in countries where there is a substantial informal and cash economy, the more likely they are to opt out of the formal economy for reasons of cost. …Money laundering and counter-terrorism measures can reduce the volume of overseas remittances to the most vulnerable populations in the poorest countries. …Administrative and financial costs imposed on voluntary associations, most of which are very small and poorly funded, can threaten the survival of small associations

By the way, the World Bank also has acknowledged that these counterproductive laws are very bad for poor people, oftentimes disenfranchising them from the banking system

Last but not least, kudos to the authors for making the very relevant point that the destruction of financial privacy is a boon for authoritarian governments.

Numbers of experienced assessors have observed that a fully functioning AML/CFT regime in some countries has provided tools for authoritarian rulers to repress their political opponents by denying them banking or other facilities, increasing surveillance over their accounts, and prosecuting or penally taxing them for  non-disclosure, in addition to opening up more opportunities for illegal extortion for private gain. This weapon can be applied against persons/organizations already in the formal financial system.

It’s worth pointing out that this also explains why it’s so dangerous to have governments collecting and sharing tax information.

But let’s stick to the issue of money laundering. Now let’s look at two case studies to get a sense of how these laws impose real-world harm.

We’ll begin with an article in The Economist, which looks at how Western Union’s ability to provide financial services has been hampered by heavy-handed (yet ineffective) laws and regulation.

It seems like this is a company providing a very valuable service, particularly to the less fortunate.

Western Union’s services are essential for people who do not have bank accounts or are working far from home. …Western Union helps to bolster trade and disperse the world’s wealth.

But the statists don’t care.

Someone, somewhere, may want to transfer money for a nefarious purpose. And rather than the government do its job and investigate actual crimes, politicians and bureaucrats have decided that it’s easier to make Western Union spy on all customers.

…these laudable activities conflict with another pressing goal: impeding money laundering. Rules to that end require financial institutions to know who their customers are and how they obtained their money. These requirements transform the virtues of Western Union’s model—the openness and breadth of its network and its willingness to process vast numbers of small transactions—into liabilities.

And the heavy boot of government came down on the company, forcing Western Union to incur heavy expenses that make the system far more expensive for consumers.

Western Union struck a far-reaching compliance agreement with Arizona’s attorney-general in 2010. It agreed to adopt 73 changes to its systems and procedures, to install an external monitor to keep tabs on its conduct and to fund the creation of a new enforcement entity, the Southwest Border Anti-Money Laundering Alliance. Many of the recommendations were highly detailed. Western Union has, for example, set up a system to monitor transactions that takes into account factors such as the seasonality of marijuana harvests and illegal immigration. It is conducting background checks on agents and their families. Such efforts have turned out to be difficult and expensive. …Western Union’s shares have been jolted several times. Earlier this month Western Union said it would be subject to independent monitoring for an extra four years. It faces big fines and criminal prosecutions if it fails to meet the stipulations in the compliance agreement.

Let’s look at another real-world consequence of the AML/CFT regime.

You’ve heard of “driving while black,” which describes the suspicion and hostility that blacks sometimes experience, particularly when driving in ritzy neighborhoods.

Well, DWB has a cousin. It’s BWR, otherwise know as “banking while Russian.” And the stereotype has unpleasant consequences for innocent people.

Here are some passages from a story in the New York Times.

We had sold our apartment in Moscow, jumped through an assortment of Russian tax hoops and transferred the proceeds to the United States, where we now lived. It made me nervous to have all that money sitting in one virtual clump in the bank — but not nearly as nervous as having the card connected to it not work. The experience was also humiliating. In one moment, I had gone from being a Citigold client to a deadbeat immigrant who couldn’t pay for her son’s diapers. I called Citibank as soon as I got home. …”Who closed it?” I was working hard not to sound belligerent. “And where is my money?” …It was Citibank. “I see that because your transactions indicated there may be an attempt to avoid complying with currency regulations, Citibank has closed your account,” the woman informed me. …“Why wasn’t I notified?” “The cashier’s check will serve as your notice.” Citibank had fired me as a client.

Why would a bank not want customers?

Because the government makes some clients too costly and too risky, even though there’s no suggestion of wrongdoing.

Other than ethnicity.

I wasn’t entirely surprised. This had happened to other Russian-Americans I know, including one of my closest friends and my father. My friend had opened her account at a local bank in the United States when she got her first job, at age 13. Her accounts were summarily closed in 2008, while she was working in Russia. The bank, which had been bought by Sovereign in the meantime, would not state a reason for firing a client of 27 years. My father, who immigrated to the United States in 1981, had his accounts closed by BankBoston in 2000, when he was a partner in a Moscow-based business. His lawyers pressed the bank on the issue and were eventually told that because Russians had been known to launder money, the bank applied “heightened scrutiny” to accounts that had a Russia connection. It had closed “many” accounts because of what it considered suspicious activity. Like other kinds of ethnic profiling, these policies of weeding out Russian-Americans who have money are hardly efficient.

But the main thing to understand is that the entire system is inefficient.

Laws were adopted with the promise they would reduce crime. But just like you don’t stop crime by having cops hang out at Dunkin’s Donuts, you also don’t stop crime by creating haystacks of financial data and then expecting to make it easier to find needles.

For more information, here’s my video on the government’s failed money laundering policies.

https://freedomandprosperity.org/2014/blog/great-moments-in-the-failed-and-costly-war-against-money-laundering

By Andrew Quinlan

This article appeared in Forbes on March 16, 2014