Thursday, January 19, 2012

Mitt Romney's Cayman Islands skeletons pop out

ABC News has a nice little report that Bain capital, the vehicle that built much of the wealth of Republican presidential candidate Mitt Romney, has set up no less than 138 secretive offshore funds in the Cayman Islands. He has several of his own funds invested there too. It's a good bit of digging, and quotes a TJN senior adviser on Romney:
"His personal finances are a poster child of what's wrong with the American tax system," said Jack Blum, a Washington lawyer who is an authority on tax enforcement and offshore banking.
The ABC reporter goes to Romney's post box in the Cayman central post office - see the picture. (It's rather reminiscent of what the centre for Apple Itunes' European operations looks like, revealing of the sheer, bald artificiality of the whole offshore thing; take a look at this very short video, or this picture.)

They then film a hapless British official from the veteran Cayman company Walkers which provides the registered office for Bain (and which has in the past helped write Cayman laws). As ABC describe the encounter:
Asked if he could confirm the existence of the Bain accounts, David Byrne, the chief marketing officer for the law firm Walkers, listed on documents as Bain's Caymans' representative, said he could not. "No, I can't at all," said Byrne. "Unfortunately, I can't comment at all on that."
It's hardly surprising he's so reticent. Cayman's Confidential Relationships (Preservation) Law - its secrecy law - is ferocious. Take a look at this wording:
5. (1)
Subject to section 3(2), whoever-
(a) being in possession of confidential information however obtained-
(i) divulges it; or (ii) attempts, offers or threatens to divulge it; or
(b) wilfully obtains or attempts to obtain confidential information,

is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years.
Our emphasis added. In other words, you can go to prison in Cayman not only for revealing information - but merely for asking for it too! (We've had complaints in person about this very aspect of the law from Cayman private practitioners.)

Romney, it has been reported, pays a lower tax rate than his secretary. Now take a look at his top campaign contributors. That's quite a shocking list: nearly 94 percent of those contributions come from the financial sector or companies (law, accountancy firms) involved in complex (and often offshore-focused) tax avoidance.

The whole thing stinks. Romney's bad enough - but he's part of a much bigger and far nastier global scandal. Romney says he follows all tax laws, which may be true. But what Cayman provides, Blum notes, is that it helps him "avoid a whole series of small traps in the tax code that ordinary people would face if they paid tax on an onshore basis." (Slightly separately, take a look at Robert Reich, for instance, on the Romney Tax Loophole.) One set of rules for the wealthy; another for the rest of us.

Let's not forget, too, that companies routinely defer their taxes by parking them offshore, tax free. They say they will pay those taxes when they 'bring the money home' - but often they do not. This helps them grow faster than their smaller, onshore-based competitors for reasons that have nothing at all to do with productive efficiency and everything to do with transferring wealth away from ordinary taxpayers. These are, in effect, untargeted subsidies, and they have the same stultifying effect on growth and efficiency. Once again: one set of rules for the big players, and another for the rest of us.

There will be many Republicans of course who support Romney's unfortunate Cayman espapades. But we would bet that there are many, many right-thinking Republicans and potential Republican voters who are uncomfortable with the way that tax havens have distorted global markets, have created a playing field that is skewed towards some and against others, and which provide a secrecy-clad hothouse for crime, insider trading and other kinds of fraud.

This is clearly the potential for a major division in the Republican Party here, especially if Romney wins the nomination. Let's see how far their opponents manage to exploit it.


Anonymous Creg said...

Romney paying a lower tax rate than his secretary has nothing to do with Cayman, after all the current tax rate for long term capital gains and investment income in the US is 15%.

Any American can get this rate if they earn their income through investments rather than salary. As the Republicans support this method of taxation, and refuse to increase taxes on the rich, how can they "cry foul" if their potential electorial candidate uses these rules.

The problem with Romney's low tax rate is an inequality in tax laws in the US, but as usual their media would rather look elsewhere to put the blame

2:05 pm  

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