Tax Havens at War
Friday April 15 2011 | 12:54 AM

US Senator Carl Levin, stalwart of the war on terrorist financing and champion of tax haven abuse in the US Senate, announced that he plans to reintroduce two bills to Congress designed to combat tax evasion. With the US desperately trying to combat its burgeoning national deficit the plans are likely to be readily accepted. In 2006 it was estimated that the US lost over a $100 billion in tax revenues that would be a welcome bonus, as Senator Levin stated "there is no doubt that closing down tax-haven abuse would make a big dent in the problems we face."

Recent victories in the fight against tax evasion in the US include the Foreign Account Tax Compliance Act (FATCA) which Congress passed last year which will become effective in 2013. FATCA requires overseas banks to disclose to the US Internal Revenue Service (IRS) all accounts opened by US depositors. Failure to disclose this information by non-compliant banks could lead to the banks being burdened with a 30% withholding tax on all their US income.  The Swiss UBS debacle forced thousands of their US clients to disclose their hidden bank accounts and more recently HSBC has found itself in the cross-hairs of a tax evasion investigation for allegedly assisting Indian clients in the US to evade their taxes. Apparently 'prospective clients were told that, as a foreign bank, HSBC would not disclose the accounts to the IRS."

Senator Levin will be re-introducing the Stop Tax Haven Abuse Act, which was initially co-sponsored by President Obama when he was a member of the Senate.  This Act would enable a number of measures that would allow the US to act against offshore financial institutions that 'impede' US tax enforcement.  Such measures would include the ability to prevent US banks to stop doing business with those non-compliant countries and clauses that provide a presumption of guilt that can be rebutted on the provision of convincing evidence to the contrary. 

The second bill is the Incorporation Transparency and Law Enforcement Assistance Act which aims to pierce the corporate veil of American companies. Senator Levin stated that "Nearly two million corporations and limited liability companies are formed within the United States each year, and we don't know who is behind them, because the states forming these new companies don't ask. US corporations with hidden owners are not only used to evade taxes, but have been used by terrorists, narco-traffickers, corrupt dictators and other criminals. " The new bill would require the disclosure of beneficial owners to the IRS and law enforcement agencies upon presentation of a subpoena. He went on to say 'it's a heck of a lot harder to argue for an end to offshore tax haven secrecy in tax haven countries if we don't put our own house in order".

On another note the tireless Senator who chairs the US Senate Investigations Committee released the Levin-Coburn Report on the financial crisis.  The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight. The co-author of the report, Dr Coburn said "Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight."  The report presents new facts that put some firms back in the firing line, with Goldman Sachs accused of misleading Congress and the possibility that the CEO, Lloyd Blankfein, and other employees could face perjury charges for denying under oath that the firm took a financial position against the mortgage market solely for its own profit.

The financial crisis has turned the focus of governments around the globe on tax havens. The rhetoric is strong and the political will, combined with enormous amounts of public support, will enable the enactment of far reaching legislation that will have a huge impact on the offshore industry.The war on tax havens has offshore firmly in its sights.