There is no doubt that,
as a financial matter, corporations are the greatest abusers
of offshore havens. Nichole Tichon, executive director of the
Tax Justice Network, notes that "estimates by the Government
Accountability Office show at least 83% of the largest 100 companies
have created offshore subsidiaries. . . Offshore tax havens cost
the Treasury over $100 billion per year.
In a study cited by the
World Bank, Raymond Baker's Global Financial Integrity Program
found that two thirds of the offshore havens' business came from
corporations and only a third from conventional criminal activity.
Just three percent was used to launder bribes.
Writes Nicholas Shaxson
in his excellent new book, Treasure Islands, "This research
underlies the point that illicit offshore flows of money are
far less about the drug smugglers, Mafiosi, celebrity tax exiles,
and fraudsters of the popular imagination and mostly about corporate
Which is fine as long
as you're only comparing fiscal impacts. But consider that three
percent of $100 billion is $3 billion - and that's just the taxes
that aren't being paid on bribes and other funny money. Add to
this the fact that these funds are having a political as well
as a financial effect. And that it takes a lot less money to
buy a politician than it does to make a major corporate tax burden
I recently came something
I had previously written that included this paragraph:
"In the 1930s, Hot
Springs represented the western border of organized crime in
the U.S with the local syndicate headed by Owney Madden, a New
York killer who had taken over the mob's resort in Arkansas.
Owney Madden was an English born gang member who had been arrested
more than 40 times in New York by the time he was 21. Madden
got the assignment from his boss, Myer Lansky. The plan for Arkansas
was modeled on an earlier one in which Governor Huey Long opened
a Swiss bank account into which the mob would put $3 to $4 million
annually for the right to run casinos in the state."
Two things jumped out.
First, the use of offshore havens goes back at least 80 years.
Second, one of its early manipulators was a politician looking
for a place to hide his illegal money.
If Huey Long could use
offshore money laundering in 1932 to handle $3-4 million in annual
bribes, how many politicians and other public officials are currently
using the same techniques and with how much money?
Here's how RT Naylor described
it in Hot Money & the Politics of Debt:
||||| The Lansky operation
perfected the technique of the 'loan-back.' The first stage involved
moving funds out of the U.S. Although couriers carrying cash
were the favorite vehicle, money could also be moved abroad in
the form of traveler's checks, cashier's checks, stocks with
nominee ownership, bearer bonds, and even blank airline tickets.
. . .
Once safely behind
the screen of Swiss bank secrecy laws, the money was ready to
return home, with its origins and nature in disguise. Sometimes
it stopped en route in a Liechtenstein anstalt (an anonymous
company with a single secret shareholder). In the final stage,
the initiator of the cycle 'borrowed' the funds from the anstalt
or directly from the Swiss bank, repaying the 'loan' with interest
- to himself - while deducting the interest from his taxable
income as a business expense." ||||
Philip Brewer, in How to Launder
Money, gives more details:
|||| First, you need
to make the money disappear. Second, you need to make it reappear
in some gradual fashion that doesn't bring it to the attention
of whoever you're trying to hide it from
If you really want
to be able to invest the money, get it overseas. . . .There are
plenty of fancy, complex ways to get the money overseas, that
mostly require an accomplice. The most basic is an invoice scam.
Establish a business that imports or exports something. Meet
with your customer or supplier and arrange with him to either
over-pay or under-bill, and then to have your counterpart deposit
(most of) the excess into your foreign bank account.. . .
If you've got the money
overseas somewhere, bring it back in some way that makes it legit.
The easiest would be to create an overseas company that then
hires you to do something. You do whatever it is and send an
invoice whenever you want some cash. You can also reverse the
invoice scam that let you get the money overseas in the first
place--now you under-pay (or over-bill), while making up the
difference out of your foreign bank account. A third option is
a fake loan where you "borrow" the money and then simply
fail to pay the money back.
If you can't wait to
reappear the money gradually, and the amount involved isn't too
big, you can always use a simple casino scam. Go to a casino
and buy some chips. Do a little low-risk gambling. (For example,
bet each chip, one at a time, on red. Do that 20 or 30 times
and you'll have about the same amount you started with.) Get
a few more chips and repeat. Play a few different games (blackjack,
craps, slots). Ideally, go to several different casinos and repeat
the whole process there. Eventually, cash in all your chips and
go home with a story about how you won a bunch of money at roulette.
Pay taxes on your winnings. ||||
Well before concerns about
corporate tax havens were being seriously raised, money was flowing
to and fro in this fashion. The drug cartels sent cash out of
America, writes Shaxson, "in shrink wrapped bills loaded
on wooden pallets." And one of the beneficiaries of the
system was Richard Nixon whose Committee to Re-Elect The President
sent illegal contributions to Mexico, and then sneaked it back
through a company in Miami. According to the Solar Navigator
website, it was this saga that led the British Guardian newspaper
to dub such transactions "laundering."
A 1998 UN
report described another example:
|||| Franklin Jurado,
a Harvard-educated Colombian economist, pleaded guilty to a single
count of money laundering in a New York federal court in April
1996 and was sentenced to seven and a half years in prison. Using
the tools he learned at America's top university, he moved $36
million in profits, from US cocaine sales for the late Colombian
drug lord Jose Santacruz-Londono, in and out of banks and companies
in an effort to make the assets appear to be of legitimate origin.
Jurado laundered the
$36 million by wiring it out of Panama, through the offices of
Merrill Lynch and other financial institutions, to Europe. In
three years, he opened more than 100 accounts in 68 banks in
nine countries: Austria, Denmark, the United Kingdom, France,
Germany, Hungary, Italy, Luxembourg, and Monaco. Some of the
accounts were opened in the names of Santacruz's mistresses and
relatives, others under assumed European-sounding names.
Keeping balances below
$10,000 to avoid investigation, Jurado shifted the funds between
the various accounts. He established European front companies
with the eventual aim of transferring the "clean" money
back to Colombia, to be invested in Santacruz's restaurants,
construction companies, pharmacies and real estate holdings.
Wikipedia puts some numbers
on it all: "Tax havens have 1.2% of the world's population
and hold 26% of the world's wealth, including 31% of the net
profits of United States multinationals. . . The IMF has said
that between $600 billion and $1.5 trillion of illicit money
is laundered annually, equal to 2% to 5% of global economic output."
While the illegal drug
trade might not compete in numbers with corporate tax laundering,
it is hardly insignificant. Its size has been estimated at $400-$500
billion, roughly that of the legal pharmaceutical industry or
twice as large as Saudi Arabia's annual oil exports.
What is astounding about
this is that an industry so big would have - at least if you
only listen to law enforcement and the media - no lobbyists in
Washington, no political agenda and make no contributions to
politicians. Based on the way the story is being told to America,
the illegal drug trade must be the most politically ethical business
in the land.
In fact, of course, the
money and its travels are just well hidden and nobody in the
establishment really wants you to spend the slightest time worrying
about it. Just like nobody in the establishment seems to care
that the drug war hasn't worked at all for four decades (money
launderer Richard Nixon first used the term in 1971). And just
like only a handful seem concerned about offshore tax havens.
If it were otherwise,
then there would have been far more interest when an investigator
discovered in the 1990s that the Development Financial Authority
of the drug-infested state of Arkansas had made an electronic
transfer of $50 million to a bank in the Cayman Islands. At the
time Grand Cayman had a population of 18,000, 570 commercial
banks, one bank regulator and a bank secrecy law. It was a favorite
destination spot for laundered drug money.
One of those bringing
drugs into Arkansas was Barry Seal, then the biggest drug importer
in the country. He was murdered and after his death it was found
that among his bank accounts was one in the Cayman Islands branch
of the Fuji Bank containing $1.6 million.
There are no culpable
names mentioned here, in part because so few in the media or
law enforcement have the slightest interest in following the
On the other hand, there
is simply no logical reason to assume that politicians and law
enforcement officers are somehow exempt from the extraordinary
temptations involved in offshore money laundering. Every way
that the drug cartels are using offshore financing is also available
to corrupt politicians.
Consider, for example, the huge fees some American politicians
are paid when they speak abroad. What a great way to launder
some money. Or what if the purchasers of those endless political
memoirs by failed politicians include mass purchases by corrupt
So far, we're certainly
far more polite about it all than, say, Mexico. But scrape the
surface just a bit and you'll find an illegal system as massive
and political corrupt as our neighbor to the south.
And one of the telling
signs is that the facts are there but so few in America's establishment
or media even want to talk about it.