UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

May 4, 2009

OBAMA PROMISES SOME PROTECTION FROM OFFSHORE SCAMS

The following is good news, but it deals - as with the matter of torture - with only a part of the problem. It appears that the Obama administration has no intention of letting us know just who benefited in a large way from offshore tax avoidance and for how much. One reason: it is likely that a large number of them also benefited indirectly from the bank bailout. In other words, they double dipped: first they didn't pay any taxes and, second, they got a taxpayer subsidy. It's unlikely we'll ever know, but it's one of the best explanations for all the insupportable secrecy about that the bank bailout.

Bloomberg - President Barack Obama today will propose to outlaw three offshore tax-avoidance techniques U.S. companies such as Caterpillar Inc. and Procter & Gamble Co. want to use to save $190 billion over the next decade and make it riskier for Americans to stash money in tax-haven banks.

Obama and Treasury Secretary Timothy Geithner are going after a strategy that allows U.S.-based multinational companies to effectively hide from the Internal Revenue Service the role their foreign subsidiaries play in shifting profits into low- tax jurisdictions such as the Cayman Islands, an administration official said.

The proposal, affecting tax rules known as "check the box," would net $86.5 billion in revenue between 2011-2019 by overhauling regulations created in Democrat Bill Clinton's administration and later written into law by a Republican- controlled Congress after Clinton tried to withdraw the rules. . .

Obama also would shift the burden of proof to individuals when the IRS alleges assets are being hidden in certain offshore bank accounts, the White House said in a statement.

"This is bad stuff," Kenneth Kies, a tax lobbyist at the Washington firm Federal Policy Group, said of Obama's plans. "This is going to be the biggest fight for the corporate community in the next two years." Kies represents General Electric Co., Anheuser-Busch Cos. and Microsoft Corp., among others. . .

In 2004, U.S.-based multinational corporations paid about $16 billion in U.S. taxes while earning about $700 billion offshore, or an effective tax rate of about 2.3 percent, according to the White House statement. The top marginal tax rate for U.S. companies is 35 percent; drug companies such as Amgen Inc. and technology companies such as Microsoft are among companies that make the biggest use of tax-deferral benefits. . .

When the Clinton administration tried to rescind the benefits of the tax rules in such cases, companies mounted a lobbying effort and got Congress to back the rule, a White House official said. Obama believes the rules have no economic substance other than avoiding U.S. tax, the official said.

Obama's other corporate tax plans are patterned on those made in 2007 by House Ways and Means Committee Chairman Charles Rangel, a New York Democrat, an administration official said. . .

For individuals, Obama will propose shifting the burden of proof when the IRS believes money is being hidden offshore. In cases where individuals bank with financial institutions that haven't agreed to report certain account information to the IRS, the individual will have to prove he or she doesn't own the account, rather than requiring the IRS to prove ownership.

Tales from the past. . .

From the Review's coverage of the Clinton & Arkansas corruption story

Progressive Review, 1998 - According to the London Telegraph's Ambrose Evans-Prichard, "[Drug dealer Barry] Seal was probably the biggest importer of cocaine in American history. Between 1980 and his assassination in 1986, his team of pilots smuggled in 36 metric tons of cocaine, 104 tons of marijuana and three tons of heroin, according to a close associate of Seal. The sums of money involved were staggering. At his death, Seal left a number of operational bank accounts. One of them, at the Cayman Islands branch of the Fuji Bank, currently has an interest-earning balance of $1,645,433,000."

Progressive Review, 1996 - An independent investigator finds evidence of an electronic transfer of $50 million from the Arkansas Development Financial Authority to a bank in the Cayman Islands. Grand Cayman has a population of 18,000, 570 commercial banks, one bank regulator and a bank secrecy law. It is a favorite destination spot for laundered drug money.

Progressive Review, 1998 - Department of Justice announcement: "James Tjahaja Riady will pay a record $8.6 million in criminal fines and plead guilty to a felony charge of conspiring to defraud the United States by unlawfully reimbursing campaign donors with foreign corporate funds in violation of federal election law, the Justice Department's Campaign Financing Task Force and the United States Attorney in Los Angeles announced today. In addition, LippoBank California, a California state-chartered bank affiliated with Lippo Group, will plead guilty to 86 misdemeanor counts charging its agents, Riady and John Huang, with making illegal foreign campaign contributions from 1988 through 1994. . .

"The $8.6 million fine represents the largest sanction imposed in a campaign finance matter in the history of the United States . . . During the period of August 1992 through October 1992, shortly after Riady pledged $1 million in support of Arkansas Governor Bill Clinton's campaign for the Presidency of the United States, contributions made by Huang were reimbursed with funds wired from a foreign Lippo Group entity into an account Riady maintained at Lippo Bank and then distributed to Huang in cash. . .

"The purpose of the contributions was to obtain various benefits from various campaign committees and candidates for Lippo Group and LippoBank, including: access, meetings, and time with politicians, elected officials, and other high-level government officials. . . a repeal of the Glass-Steagall Act which limited business opportunities for LippoBank."

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