U.S. lawmaker targets offshore tax evaders: 02/11/08
By Kevin Drawbaugh, Reuters, 02/08/2008
Wealthy Americans dodge more than $100 billion a year in taxes by hiding assets in the Cayman Islands and other offshore tax havens, said a senior lawmaker on Friday who is trying to put a stop to it.
Under legislation he is offering with Sen. Barack Obama, Sen. Carl Levin said it would become easier for federal authorities to pursue possible tax evaders by putting more onus on them to show that offshore shelters are legitimate.
“It’s got to end, and it’s going to take a change in the law,” Levin said at the Reuters Regulation Summit.
The Michigan Democrat chairs the Senate Permanent Subcommittee on Investigations. He said subcommittee investigators, who have done a number of ground-breaking tax probes in recent years, are focused on the issue.
He acknowledged reports about a new probe into a Cayman Islands scheme.
“It’s been described in the media that there’s a tax avoidance scheme involving dividend tax shelters. I don’t want to deny that,” he said, declining to provide details.
“Apparently some of the folks that were subpoenaed by us decided to share that information with the media,” he said.
Citigroup (C.N: Quote, Profile, Research), Lehman Brothers (LEH.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research) and UBS AG (UBSN.VX: Quote, Profile, Research) have received subpoenas relating to the probe, The Wall Street Journal reported last month.
The Journal said the probe targets offshore hedge funds doing derivatives deals with investment banks that allow the funds to avoid paying taxes on U.S. stock dividends.
Officials at Citigroup, Lehman, UBS and Morgan Stanley declined to comment.
PATENTS PENDING
A thriving business in tax dodges, many of them involving complex offshore financial transactions, has grown up in recent years on Wall Street, with some purveyors even seeking U.S. patent protection for their off-the-shelf schemes.
Levin; Obama, an Illinois Democrat who is campaigning for his party’s nomination for president; and Sen. Norm Coleman, a Republican from Minnesota, last year introduced a bill to crack down on tax evasion strategies.
It would ban patenting them, change the legal standards underlying how they are defended and target 34 offshore tax havens, including the Caymans, Bermuda, Grenada, Aruba and the Bahamas.
The Treasury Department could slap offending tax havens with the same penalties it places on money laundering centers, under the bill, while would also stiffen penalties in the United States for promoting abusive tax shelters.
“There’s a lot of money involved. We’ve got people paying taxes in this country who are middle-income, working families and, at the same time, people avoiding paying taxes who are making millions of dollars a year,” Levin said at the summit.
“The public knows about it. They’re unhappy with it. I think it’s going to be an issue in the campaign, by the way. I hope it will be. I hope we can get some legislation passed.”
(Additional reporting by Jessica Hall in Philadelphia, Joe Giannone in New York)
(Editing by Gary Hill)