Wednesday, April 29, 2009

Report from the Offshore Alert conference

Our colleague Sarah Lewis at TJN-USA has been blogging from the 7th Annual Offshore Alert Financial Due Diligence Conference in Miami. We are delighted to host her as part of our "Guest Blogger" series.

Congratulations to OffshoreAlert for bringing together policemen and practitioners of the tax evasion and avoidance industry, and for helping join the dots. There was record attendance: 263 delegates, one third of whom were lawyers. David Marchant, publisher of the Offshore Alert newsletter, takes no position on either side of the philosophical divide, and is adept at engaging the high profile speakers and panelists with incisive questions that generate energetic debate.

Keynote Speaker Jeffrey Owens, Director of the OECD's Center for Tax Policy and Administration, noted the links between tax non-compliance and perpetuating the suffering in developing nations. Unsurprisingly, there were practitioners for whom that did not appear to register as a priority consideration. Owens emphasized the current political sea change, speaking of how tax havens must recognize that this industry is becoming untenable.

Clearly, offshore centers feel under attack from the OECD and G20. Many practitioners see a finger of blame and shame pointed at them, and some who operate out of the smaller tax havens point a defensive finger in return, making much of transparency deficiencies within Delaware, Wyoming and Nevada, and the UK. TJN has no complaints about this latter point: as we keep saying, these large places are secrecy jurisdictions too; it is crucial to eliminate the misunderstanding that tax havens are only the small jurisdictions like Cayman or Jersey - the problem has metastatised deep into the world's biggest economies and is continuing to spread (see here for a most recent example).

I heard an interesting nuance: many offshore practitioners refer to the USA "Stop Tax Haven Act", instead of its full title Stop "Tax haven Abuse Act", so placing the emphasis on the national or jurisdictional element rather than the element of abusing tax and financial systems.

Fortunately a welcome redirection towards the real issues was provided by Bob Roach, Counsel and Chief Investigator of the US Permanent Subcommittee on Investigations, and by IRS specialists Daniel Reeves, John McDougal and Thomas Kelly. Roach, speaking at a session titled "Power Politics - The Attack on OFC's by the World's Major Countries," suggested that those putting up a challenge about the Delaware, Nevada, Wyoming issue should review and support the recently introduced Incorporation Transparency and Law Enforcement Assistance Act - the point being that measures are being take to address deficiencies in transparency and abuse of financial systems, regardless of their location. Daniel Reeves opened a session on IRS Offshore Enforcement Activities and Programs by clearly stating that their efforts are not directed at "tax havens", their efforts are aimed at taxpayers who evade and avoid due payment of their taxes and do not abide by the law.

Discussion of The UBS and LGT cases generated great interest, of course. As well as Bob Roach and the IRS specialists mentioned, discussion and panelists included lawyers who have represented high profile tax evaders including Igor Olenicoff of the UBS story. Daniel Reeves, a lead IRS agent in the UBS case, said that the IRS is planning to pursue John Doe summonses against other banks. "We have identified other offshore banks" that are expected to receive the summons, Mr. Reeves said. This hit the newswires immediately.

A number of unfortunate and hard-to-believe views were aired. For example, a representative for BVI stated that the volume of BVI business companies is not the aim and prerogative of the BVI government, rather, their intention has been to provide a "quality product that met the legitimate needs of the international community. He then acknowledged that over 50% of the BVI's revenue comes from company fees. A panel representative for Cayman stated that they have not used secrecy as a selling point for several years, it is, he said, because of the excellent service level they provide that brings in business. The BVI representative proudly cites a firm, Withers, as having just established a BVI office as the only onshore law firm with an offshore presence. To quote from the Withers site: "Increasingly international litigation, such as insolvency litigation, fraud and asset tracing, involves a BVI offshore component." Does that not infer that the BVI financial institutions and products are to a significant degree used for unscrupulous reasons? A Bermuda representative stated that a future growing business of offshore centers can be to protect the assets of the wealthy from suffering the worst effects of the economic crisis -- ignoring the fact that it was the use of offshore centers to book and disguise massive contingent liabilities that was a root cause of the crisis in the first place.

Wendy Warren, CEO and Executive Director of the Bahamas Financial Services Board, argued that it goes against the grain to to give up account information to tax authorities of governments where the data may be used for nefarious purposes. However, this alluring argument needs to be thought through. TJN is not aware of a single instance worldwide where offshore secrecy has been used successfully to protect a human rights activist, a victimised street protester, trade union official or anyone else fighting against genuine injustice. Rather, it is the people who oppress them - the wealthy dictators and army generals - who use the secrecy world to abuse their citizens and steal their national wealth. And the fact remains that a financial institution or offshore center government authority is providing for that client to avoid the legal requirements of their own country.

I came away from the conference with the impression of two broad categories of views and stances. First, the encouraging, forward-looking category: concerned about secrecy and abuse and the effect it has on developing countries in particular. Second, an approach of putting one's head in the sand, while simultaneously pointing fingers at non-transparent centers such as in the US and UK. Pointing fingers while your head is in the sand: that is quite an acrobatic feat.

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