Corruption, Crime, Cheats and Monkey Business

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“The difference between tax avoidance and tax evasion is the thickness of a prison wall.”
Denis Healey, a former British chancellor.
Joly says the expansion of tax havens in recent years has also become a problem for the market. She calls dealing with tax havens “phase two" in the corruption debate.
Development Today, in an interview with Eva Joly.
The U.S. should not be financing itself by opening the door to foreign tax cheats and giving them assurance their information will not be shared with their home governments.
Jack Blum, TJN senior adviser, testifying before the US Sentate Committee on Finance, July 24, 2008
Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials. . . to sustain its economy, Singapore is building casinos to attract corruption money from China.
Andy Xie, Morgan Stanley economist, in an internal e-mail that cost him his job
The same mechanisms allow tax evasion, tax avoidance, corruption, and organized crime money to flow -- it’s all the same. While we’ve left these loopholes open because it’s beneficial to multinationals and to the rich, to be able to structure their money to minimize tax, we let a hell of a lot more go on under this.
Anthea Lawson, Global Witness
The police work with criminals on a daily basis — we have paid informers who help us uncover drug trafficking or other crimes. Particularly with tax fraud, you'd never be able to get at these people otherwise.
Konrad Freiberg, head of Germany's police union, responding to Swiss cries of outrage that Germany's tax authorities would buy supposedly "stolen" information on German tax evaders
The magistrates are like sheriffs in the spaghetti westerns who watch the bandits celebrate on the other side of the Rio Grande... They taunt us—and there is nothing we can do.”
Eva Joly, furious about how tax havens stonewalled her judicial probes.
All successful revolutions are the kicking in of a rotten door
JK Galbraith, appropriated by TJN to explain the movement's remarkable success
53 per cent of countries said to be least corrupt by the Transparency International Index are offshore tax havens, where most of the corrupt money goes. There is a lack of political will in the leading tax haven States to part with information required to trace such assets as they are all too aware of the extent to which their own economies have become geared to this flow of illegal capital from the poorer countries.
AP Singh, director of India's Central Bureau of Investigations, Feb 2012
There were threats but veiled ones and not from Africans. They were from financial intermediaries in Switzerland, sometimes lawyers, who, feigning friendship, advised me to drop the whole business. They told me to be careful and suggested that I “not exaggerate” to avoid problems. On some occasions I could have earned lots of money if I’d dropped certain things. . . .Swiss banks generally no longer accept funds from people who are politically exposed or from their clans. But dictators may continue trying to put their money in Swiss banks by using increasingly complex methods, such as accounts created on behalf of companies whose shareholders are based in the British Virgin Islands or in Panama.
Campaigning Geneva lawyer Enrico Monfrini, April 2011

Perhaps you are thinking that anti-money laundering laws are designed to address this. Well, yes and no. Many nations have major holes in their anti-money laundering laws. Take the United States for example. We bar only the incoming proceeds of drugs, bribery, and terrorism. It remains legal to bring into the United States the proceeds of other forms of foreign crimes, including racketeering, handling stolen property, credit fraud, counterfeiting, contraband, slave trading, alien smuggling, trafficking in women, environmental crimes, and of course, all forms of tax-evading money. Without trying to cover each country in Europe, suffice it to say that no western nation does a good job of enforcing its anti-money laundering regime.
Raymond Baker, money laundering expert and author of Capitalism's Achilles Heel, June 2007
Abusive tax shelters are usually tough to prosecute. Crimes such as terrorism, murder, and fraud produce instant recognition of the immorality involved. Abusive tax shelters, by contrast, are often “MEGOs,” meaning “My Eyes Glaze Over.” Those who cook up these concoctions count on their complexity to escape scrutiny and public ire.
Carl Levin, introducing the Stop Tax Haven Abuse Act in the U.S.
“I don’t know a single big business in Ukraine which is owned transparently and doesn’t use non-resident companies."
Yaroslav Lomakin, of Honest & Bright, a Moscow consulting firm, who himself has been in the business of registering offshore companies.
The problems of offshore tax evasion are exacerbated by the longstanding “revenue rule,” which, put crudely, is a common law rule that says no government should help enforce the tax laws of another government. . . . the revenue rule gives professionals and financial institutions the idea that helping people evade the taxes they owe their own governments is a legal and indeed honorable business as long as you are not in their country. That proposition has no place in today’s world. Mexico cannot pay its police enough to keep them honest because it lacks the tax revenue. We have an all out drug war on the Mexican border and little hope that the Mexican government can end it. Helping Mexicans avoid Mexican tax is not benign. It has a direct impact here. Likewise, having an offshore industry ready to serve U.S. tax cheats is not benign.
Jack Blum , TJN senior adviser, testifying before the US Sentate committee on finance July 24, 2008.
Tax evasion by means of offshore investment is quite easy for U.S. resident individual investors. U.S. tax, securities, and anti-money laundering laws, as well as U.S. information agreements, don't do much to stop tax evasion.
Martin A. Sullivan and Lee A. Sheppard, TaxAnalysts/Tax Notes
Offshore (is) a kitchen, where corporate books are cooked.
Jack Blum, April 2009
A $1,000 fine is like a jaywalking ticket for robbing a bank.
US Senator Carl Levin, Feb 2007, on the current level of fines for lawyers who help tax evaders head off questioning from the Internal Revenue Service (IRS.)
"There is very little evidence that the reports banks are required to submit have been a deterrent to illegal activity or a method of identifying criminal behavior."
Florida Bankers' Association, July 2008
Let's be serious about where the big money is. If you look at the trail of cocaine, you'll find that 5% of the profits remain in the producing countries; 95% is in the distribution networks and laundered. The big money is in the big banks in the big countries; the big money is in the US, Europe and Asia.
Mauricico Rodríguez, Colombia's ambassador to London, July 2011, original here.
Each year, the States allow persons to form nearly 2 million corporations and limited liability companies in this country without knowing – or even asking -- who the beneficial owners are behind those corporations. . . . our law enforcement officials have too often had to stand silent when asked by their counterparts in other countries for information about who owns a U.S. corporation committing crimes in their jurisdictions. The reality is that the United States is as bad as any offshore jurisdiction when it comes to responding to those requests – we can’t answer them because we don’t have the information.Senator Carl Levin, May 2008
“Illicit, disguised and hidden financial flows create a high-risk environment for capitalists and a low-risk environment for criminals and thugs. When we pervert the proper functioning of our chosen system, we lose the soft power it has to project values across the globe. Capitalism itself then runs a reputational risk. As it is now, many millions of people in developing and transitional economies scoff at free markets, regarding the concept as a license to steal in the same way as they see other others illicitly enriching themselves.”
Raymond Baker, in his book Capitalism's Achilles Heel
'We feel that this (lack of provision of an effective regulatory system) might be a grave omission, since it is notorious that this particular territory, in common with Bermuda, attracts all sorts of financial wizards, some of whose activities we can well believe should be controlled in the public interest.'
WG Hulland (Colonial Office) to BE Bennett (Bank of England) 3 NOV 1961 [memorandum concerning Bahamas]
The structures are mere pieces of paper with no commercial reality. They are backed by formalities that allow them to pass paper checklists in other jurisdictions including the United States. For example, the island of Nevis, part of the Federation of St. Kitts and Nevis, is home to tens of thousands of corporations, all of which have boards of directors. When banks and brokerage firms ask about the control of the corporation for AML purposes, the person opening the account furnishes the passport photos of the nominee shareholders, officers and directors. The same twenty people are the nominees for thousands of corporations. They have no knowledge of, or fiduciary responsibility for the corporation’s business. If the nominee directors and officers were water-boarded they could not tell you what the corporation was doing or who owned it.
Jack Blum , TJN senior adviser, testifying on trusts and other offshore products before the US Sentate committee on finance, July 24, 2008.
"If Swiss banking secrecy were abolished, a large part of Switzerland's private banking business would disappear."
Dr Gunter Woernle, author of Wernlim directory of Swiss private banking - FT, 1997
We must reconsider what constitutes corruption. It is right to be concerned by bribery and embezzlement of public assets, but tax evasion is generally overlooked even though it represents theft of public assets and, in terms of orders of magnitude, has far greater impact on public revenues than bribery and embezzlement. Tax evasion involves abusive behaviour at the intersection between private activity and the public interest. It involves minorities bypassing accepted social norms, and provides one set of rules for the rich and well connected, and another set of rules for the poor and weak. More insidiously, it involves privileged elites, who use secrecy jurisdictions to undermine the will of elected parliaments. It is time that secrecy jurisdictions are recognised for what they really are: a full-on assault on the sovereignty of nation states, a direct attack on democracy, and a cancer running through the veins of contemporary capitalism.
John Christensen, director, Tax Justice Network, September 2008
In Belize you can be the grantor, the trustee, and the beneficiary, and have the trust considered valid. You can include provisions allowing you to redraw the trust instrument and add a flee clause which allows a change in situs for the trust in case of criminal or tax investigation. Jersey trusts can be administered outside of Jersey by non-citizens, and with no records kept in Jersey. Jurisdictions in search of financial services business are engaged in a race to the bottom to provide tools for people trying to hide money.
Jack Blum, TJN senior adviser, testifying before the US Sentate committee on finance, July 24, 2008.
'Almost the last thing (Adam Smith) wrote..was a passage he added to the sixth edition of the Theory of Moral Sentiments. In it he describes the admiration accorded to the rich and the contempt meted out to the poor not just as a fault but as the "great and most universal cause of the corruption of moral sentiments."'
James Buchan LRB vol 17 no 24 Dec 1995
A senior tax professional at accounting giant KPMG compared possible tax shelter fees with possible tax shelter penalties if the firm were caught promoting an illegal tax shelter. This senior tax professional wrote the following: “[O]ur average deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000.” He then recommended the obvious: going forward with sales of the abusive tax shelter on a cost-benefit basis.
US Senator Carl Levin, February 2007
Yukos "exercised its constitutional right to manicure its tax affairs"
[Yukos CFO Bruce Misamore, quoted in Platts, 03 12 2003]
There’s a building in the Cayman Islands that supposedly houses 12,000 U.S. corporations, which means it is either the largest building in the world or the biggest tax ripoff in the world, and I think we know which one it is.
Barack Obama, US Senator, 2007
"Offshore tax havens have become so ingrained in the international business system that it will be very difficult for regulators to substantially change it -- not that they shouldn't try. Unfortunately, while its perfectly natural and sensible for companies to minimise tax for shareholders, the same systems can be used for money-laundering by organised crime."
Jeff Katz, chief executive, Bishop International (a corporate investigations group)
"It is the hiding mechanisms we want to get rid of, not the tax havens. Tax rates are not my concern. What I am talking about is the option of hiding criminal money. ... When you have these kinds of structures they can be used by everybody, including terrorists."
Eva Joly In journal Development Today, March 2007
“I see so many similarities, in France and overseas, between state corruption and all kinds of mafia. The same networks, the same henchmen, the same banks, the same marble villas.”
Eva Joly, Notre affaire à tous, 2000
The greater the loss, the greater the profit. How’s that for turning capitalism on its head!
US Senator Carl Levin, Feb 2007, on tax shelter fees typically paid in proportion to the size of projected paper losses which can be used to shelter income from tax.
There is a five-story building in the Cayman Islands that is the home to 12,748 companies. Mr. President, this is a tax dodge. There are not over 12,000 companies doing business out of this building. They are doing monkey business out of this building. They are engaged in a massive tax evasion. This is the kind of thing we ought to shut down. . . This is a picture of a sewer system in Europe. What does a sewer system in Europe have to do with the budget of the United States? Unfortunately, a lot because wealthy investors and companies bought this sewer system in Europe, depreciated it on the books in the United States to reduce their tax in America, and then they leased the sewer system back to the European city that built it in the first place. There are hundreds of billions of dollars involved in these tax scams. It is growing, and it is a cancer that has to be stopped. ... Another committee of Congress has told us that there is $100 billion a year -- over $500 billion over 5 years -- being lost to the U.S. Treasury to these offshore tax haven scams. We suggest cutting that off, stopping it, recovering that revenue.
ChairmanKent Conrad (D-ND) on FY 2008 Senate Budget Resolution March 23, 2007.

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