Has Too Big to Jail Finally Been Overcome?

We finally have a felony conviction, aiding and abetting tax evasion, for the major bank Credit Suisse, but what are the penalties?  For starters the bank will be fined $2.6 billion, a fair hunk of change to be sure, but the CEO Brady Dougan said this in a press statement, so where's the beef?

Dougan said the settlement had had little impact on business. “We have found no instances where clients cannot do business with us,” he said. “Our discussions with clients have been very reassuring and we haven’t seen very many issues at all.”

So much for feeling too much pain, now does he go to jail?  Not a chance in my opinion, even if Switzerland extradited him which they won't. Then there's the matter of the tax evaders, Credit Suisse hasn't been required to reveal who they are so the IRS can collect taxes from them, as well as prosecute them.  That has Senators Carl Levin and John McCain puzzled too after they did all the investigative work that led to the conviction.

Senators Carl Levin and John McCain welcomed the $2.6bn fine of the bank announced Monday but said more needed to be done. Levin and McCain led the permanent subcommittee on investigations team that uncovered much of the wrongdoing at the bank.

In a statement, Levin said it was “appropriate” that Credit Suisse had been held criminally liable for aiding and abetting tax evasion – the first bank of this scale to held criminally liable for 20 years.

He said the fine struck “an important blow against tax evasion through bank secrecy”.

“But it is a mystery to me why the US government didn’t require as part of the agreement that the bank cough up some of the names of the US clients with secret Swiss bank accounts. More than 20,000 Americans were Credit Suisse account holders in Switzerland, the vast majority of whom never disclosed their accounts as required by US law. This leaves their identities undisclosed, with no accountability for taxes owed. The changes Credit Suisse has agreed to make to its practices are long overdue and welcome, but must be carefully monitored,” he said.

McCain said he was “gratified” by the Justice Department’s decision to require Credit Suisse to plead guilty to criminal wrongdoing. “In such cases, it is vitally important for all Americans to know that no financial institution is ‘too big to prosecute,’” he said. But he added that questions remained.

“Over the next few days, I look forward to reviewing this guilty plea closely to see whether it appropriately holds officers, directors and key executives individually accountable and whether the plea will be sufficient to help deter similar misconduct in the future,” he said.

In The Guardian story, they interviewed  John Coffee, Adolf A Berle professor of law at Columbia Law School, and he said.

“It is less than a severe sanction when no officers are indicted, when the settlement does not require the dismissal of any employees and where they do not get the names of these US customers,” he said. He said other regulators could take further action, the SEC could bar it from being a money manager, but that was not going to happen.

“Mary Jo White [chair of the SEC] does not want to inconvenience a major bank over a little thing like a federal felony conviction,” he said.

Tax Havens Under Fire

Ever since the ICIJ published their report on Tax Haven use, the tax fairness issue has finally gained traction in the press and the world governments have taken notice. 

• The UK Prime Minister David Cameron is escalating the issue as a top priority in a G8 summit this month.
• The normally defensive Bloomberg News is reporting that offshore cash holdings by US entities is growing fast, it's up to an estimated $1.9 Trillion at the end of 2012.
• The US PIRG organization reports Academic studies conclude tax haven abuse costs the United States approximately $150 billion in tax revenues every year. Multinational corporations account for $90 billion and individuals the rest.

 Hopefully we will eventually get some deficit relief when the tax dodgers start paying their share.

Apple Says "We Pay Our Taxes", Well, Some of Them

The CEO's of big multinational enterprises have to be masters of using words to justify avoiding unnecessary responsibilities, like US Income tax.  This CNN article has some of the back and forth between Tim Cook, Apple CEO and Carl Levin and John McCain.  They start off by calling him a liar, then they get into the meat of the issue.

Michigan Sen. Carl Levin, chairman of the Senate's Permanent Subcommittee on Investigations, and ranking member John McCain of Arizona both started the hearing with withering criticism of Apple's practice of shifting income to Ireland to avoid paying U.S. taxes.
Levin, a Democrat, called the practice a "sham," while McCain, a Republican, said that Apple's claims that it use of the Irish subsidiary did not reduce its U.S. taxes is "demonstrably false."
"U.S. corporations cannot continue to avoid paying their appropriate share in taxes," said McCain. "Our military can't afford it. Our economy cannot endure it. And the American people will not tolerate it."

"Apple is a great company, but no company should be able to determine how much it's going to pay in taxes...using all kinds of gimmicks to avoid paying the taxes that should be paid to this country," Levin said. "The people know it's not right."
Even the critics of Apple at the hearing did not claim that it was doing anything illegal with its tax strategy, they were only saying that the way the current tax system is now set up was bad policy.

In a related article, CNN explains how some of their tax gimmicks worked.

The 10-page overview of tax principles and law in the middle -- a history of how a program to block the use of offshore tax havens begun by President Kennedy was riddled with loopholes introduced by Congress -- is almost impenetrable.
Yet you need to wrap your mind around how Subpart F of the U.S. Tax Code was undermined by the so-called check-the-box and look-through rules in order to understand how Apple, by the subcommittee's calculations, was able to legally avoid paying U.S. taxes on $44 billion of income over a four-year period.
In one two-year span, according to the report, Apple was able to make $35 billion in income disappear through the check-the-box loophole and avoid paying $12.5 billion in U.S. taxes, or $17 million a day. The trick, as illustrated by the chart above, was to have billions in profits and dividends from overseas operations made payable to Apple Operations International, Apple's Irish subsidiary that by the company's own description is, for tax purposes, resident neither in the U.S. nor in Ireland.

 The report prepared by the Senate committee noted that:

At the same time as the U.S. federal debt has continued to grow – now surpassing $16 trillion the U.S. corporate tax base has continued to decline, placing a greater burden on individual taxpayers and future generations. According to a report prepared for Congress:

“At its post WWII peak in 1952, the corporate tax generated 32.1% of all federal tax

revenue. In that same year the individual tax accounted for 42.2% of federal revenue,

and the payroll tax accounted for 9.7% of revenue. Today, the corporate tax accounts for

8.9% of federal tax revenue, whereas the individual and payroll taxes generate 41.5% and

40.0%, respectively, of federal revenue.”

 Incidentally, Ireland was pissed about being called a Tax Haven.

The Pro Sports Tax Scam

The NFL doesn't pay any taxes, due to the unusual tax exemption awarded it by the Federal Government, something which Senator Tom Coburn (R-OK) would put an end to.  He is sponsoring an amendment to the Marketplace Fairness Act, the Properly Reducing Overexemptions for Sports Act (or “PRO Sports Act”), that would end the corporate welfare loophole gained by the NFL and other Professional Sports Associations.

The uniqueness of the NFL’s 501(c)(6) status is that it got its tax exemption in 1966 legislation that established “professional football leagues” as a category of the (c)(6) business or trade association, otherwise defined by the IRS as ”business leagues, chambers of commerce, real estate boards, [and] boards of trade.” You can thank former commissioner Pete Rozelle for that nifty provision, included in legislation that also exempted the NFL from anti-trust provisions.

If the NFL were simply a business or trade association, it would be a 501(c)(6) because its “purpose is to promote the common business interest and not to engage in a regular business of a kind ordinarily carried on for profit.” However, Coburn’s amendment suggests that the NFL isn’t simply promoting the common business interests and value of the sport of football, but specifically acting like a business itself in increasing its profitability and the specific profitability of its members.

Not only are the 7-figure paychecks of the commissioners and top executives paid with tax-exempt dollars, the NFL teams also write-off the dues they pay to the NFL.  The NFL has a very lucrative logo licensing business (caps, jerseys, T-shirts, etc.) that is also tax exempt.  Similar arrangements exist with the PGA and the NHL.  Time for these tax leeches start paying their way.

Hidden Money Costs 99% of Us

In this Opinion Story, an Economics professor talks about the revelations brought by the Secrecy For Sale project and the ICIJ.

The heads of the worlds major banks - those who demanded and got trillion dollar bailouts and who now demand austerity programs to balance government budgets - preside over institutions that make money helping the rich escape taxation. Hiding money in the ways and amounts lately revealed by the ICIJ is a deep kind of social corruption. It goes beyond questions of legality to the heart of modern political economy.

The real question is whether the people hurt by this behavior will change the system that promotes and rewards it.

See this video on how easy it is to hide money.

Humpty Dumpty and offshore tax havens 2

The ICIJ revelations are starting to ripple around the world as many nations realize they're being ripped off and are starting to react.  See my earlier post on the subject here.  The report has set off a scramble by governments to calm public anger over widespread tax dodging by the rich when governments are cutting budgets and calling on citizens to pay higher taxes.

In another announcement last week, Luxembourg Prime Minister Jean-Claude Juncker said his country plans to lift bank secrecy rules for European Union citizens who have money stashed in the country, ending decades of bank secrecy in Luxembourg.

“We are following a global movement,” Juncker told parliament in a state-of-the-nation address. The new transparency regime would begin in January 2015. 

The New York Times also weighed in on the issue as well as documenting how our tax policy is stacked in favor of the one percent who own about 40 percent of the nation’s wealth.

"Over the years, some of the wealthy have been enormously successful in getting special treatment, shifting an ever greater share of the burden of financing the country’s expenditures — defense, education, social programs — onto others. Ironically, this is especially true of some of our multinational corporations, which call on the federal government to negotiate favorable trade treaties that allow them easy entry into foreign markets and to defend their commercial interests around the world, but then use these foreign bases to avoid paying taxes.
General Electric has become the symbol for multinational corporations that have their headquarters in the United States but pay almost no taxes — its effective corporate-tax rate averaged less than 2 percent from 2002 to 2012 — just as Mitt Romney, the Republican presidential nominee last year, became the symbol for the wealthy who don’t pay their fair share when he admitted that he paid only 14 percent of his income in taxes in 2011, even as he notoriously complained that 47 percent of Americans were freeloaders. Neither G.E. nor Mr. Romney has, to my knowledge, broken any tax laws, but the sparse taxes they’ve paid violate most Americans’ basic sense of fairness."

Humpty Dumpty and offshore tax havens 1

The International Consortium of Investigative Journalists.  Gerard Ryle. 

Remember those names, as they are about to rip open the world of offshore tax havens for all to see, and it isn't pretty.  This is a story so huge it's tough to get your mind around it.  As I was going to links to get information, their web site kept crashing, probably getting millions of hits.

It began several years ago when Gerard worked for the Sydney Morning Herald investigating a financial fraud case perpetuated by an Australian company Firepower International, and he followed a trail of leads to Hong Kong and other tax havens.  In 2011 he moved to head the Center for Public Integrity and the ICIJ.  One day, probably in late 2011 or early 2012 (he isn't saying, for reasons that will become clear) he received a computer hard drive with millions of documents (it came by mail in a plain brown envelope).  The total mass of data is reported to be 160 times larger than the trove of State Department cables published by WikiLeaks in 2010.  Somehow he had to analyze the mass of emails, Databases, Spreadsheets and images.   He activated the Secrecy for Sale project and got assistance from hundreds of people around the world to clean, organize and analyze the data.

They are naming names and taking no prisoners in disclosing the movement of about $21 Trillion in tax havens around the world.  There are 130,000 names, details of more than 122,000 offshore companies or trusts, and nearly 12,000 intermediaries (agents or "introducers").  By the way, that sum is about the GDP of US and China combined!

This will perhaps be the biggest story of the decade, maybe of the century.  The people who control this $21 Trillion are not happy campers, they include Russian Gangsters, Drug Lords, major politicians, criminals, big bankers and just plain millionaires.  I hope the person who provided the information never gets revealed.  Here are some links to stories. 
The Guardian - UK  The Sydney Morning Herald The Toronto Star.

The strange story of Beda Singenberger and the IRS

A recent news story is making the rounds that says a Swiss Financial Advisor who was helping US citizens hide money from the IRS accidentally sent a list of his clients to somebody in the US and, again accidentally, it ended up in the hands of the US Dept of Justice which started prosecuting the 60 people on the list. Those people had concealed over $184 million of wealth from the tax man, and now they're going to pay up.

There is one person who thinks the story is a smoke screen, and I think his version is more probably correct than the official story.  The US probably put the squeeze on the Swiss Bankers involved and they coughed up the list of clients, but they needed a cover story to avoid being in violation of Swiss laws, so the list turned up "accidentally".

Beda Singenberger is also charged by US authorities, but for the moment he is basking in Switzerland and not likely to be tried in the US.  Singenberger, who lives in Zurich, was charged in New York federal court in July 2011 with conspiracy to cheat the IRS.

The rich don't pay taxes, only little people do that.

Buzzflash is reporting a new tax dodge utilized by billionaire hedge fund managers, moving billions through sham re-insurance companies in the Bahamas.  Oddly enough this was first reported by Bloomberg Businessweek (ironically owned by politician plutocrat and defender of the oligarchy Michael Bloomberg).  Here is the substance of this scam.  All they do is send their spare change, billions of it, to their sham re-insurance company they set up in the Bahamas for this purpose.  The re-insurance treats the cash as "reserves" against future claims.  There won't be any claims since the re-insurance company doesn't insure anything.  The cash gets invested in the hedge fund and the money made is not taxable at all in the Bahamas, and not in the US until the "reserve" is closed out, years down the road.  The taxes, when paid, are at the lower capital-gains rate and not as ordinary income.  

Generations of investors have used reinsurance as an investment and tax-avoidance tool, and a decade ago the IRS vowed to clamp down on its abuses, with little today to show and no prosecutions.

Death and Taxes

The only for-sure things you can count on are death and taxes, right?  Wrong if you're a corporation, they can live indefinitely and do a pretty good job of not paying taxes.

The Swiss Bank Stonewall Cracked

Wegelin & Co., founded in 1741 as the oldest Swiss bank, will close its doors after admitting it helped Americans evade US Income taxes.  The settlement of $58 Million may be rejected by a US judge however as too lenient.  This is also the first time a Swiss Bank not only admitted guilt, but also closed its doors, which finally shows the US has the guts to follow through on foreign banks.  This particular bank was apparently small enough to fail.  At least it's a start.

Fix the Debt Scammers

Our corporate friends at the well funded "Fix the Debt" campaign are still hoping to get "their" tax-cut too.  The Institute for Policy Studies tells how.  Fix the Debt leaders lamented that “Washington missed this magic moment to do something big to reduce the deficit, reform our tax code, and fix our entitlement programs.” in their Press Release.  What they aren't saying is that they're hoping for HUNDREDS OF BILLIONS in "tax reform" measures that they're pushing.  These are the richest of the rich, with companies that pay their CEO's more than they pay in US taxes! 

IPS comments  "The hypocrisy was stunning. We documented, for example, how many of the campaign’s leaders had contributed massively to the national debt through tax-dodging tricks. Twenty-four of them had even paid their CEOs more in 2011 than their firms paid in corporate income taxes. We also calculated that the average Fix the Debt CEO calling for cuts to Social Security themselves had pension assets of $12 million, enough to garner a $65,000 monthly retirement check starting at age 65. "