Offshore Asset Protection BLOG - Bob Bauman

British Labor Declares Financial War on U.K. Offshore Havens

Wallowing in trillions of pounds sterling of government debt, suffering an unprecedented recession prolonged by its leftist policies, with banks propped up by £1.2 trillion (US$1.7 trillion) in bailouts taken from angry taxpayers, the British Labour Party, now in its political death throws, has decided to destroy the United Kingdom's offshore financial centers.

In doing some hope that it may precipitate a constitutional crisis the gravity of which has not been since the abdication of Edward VIII in 1936.

Keep in mind that Jersey, Guernsey and the Isle of Man are not part of the UK but are self-governing dependencies of the Crown. This means they have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. The Crown Dependencies are not represented in the UK Parliament and UK legislation does not extend to them.

Brown's Tax Haven Ploy

Earlier this month I gave you a detailed account of the shabby treatment the Labour government has accorded the U.K. offshore financial centers, even though these centers have led the way in offshore financial reforms well before the current OECD blacklisting attacks.

In the midst of the worst British recession in 30 years, faltering Prime Minister Gordon Brown (left) has been demanding “the end of tax havens,” demagogically blaming them for the global economic downturn which had its root causes in the City of London, in Wall Street and elsewhere.

Chancellor of the Exchequer, Alistair Darling, (below) announced a review of the Crown dependencies and overseas territories in his pre-budget report last year, three weeks after he made disturbing comments to a Treasury select committee about the Isle of Man being little more than a “tax haven sitting in the Irish Sea”.
 
No to the Cayman Islands

The anti-Manx action appears to be part of a larger plan of actin aimed against all U.K. offshore financial centers.

A few weeks ago the Labour government refused to assist the Cayman Islands, a British overseas territory (read colony), with a budget shortfall, in effect ordering the islands to sink or swim on their own financially. In the past London under both political parties has accepted a duty to support its colonial possessions in times of need. The Foreign Office refused the Cayman Islands permission to raise a £280m (US$459m) loan until it has levied new taxes.

Attack on the Isle of Man

Now comes Mr. Darling and announces that, without any negotiations, and with only 30 days notice, the Labour government is cutting the annual budget of the Crown dependency of the Isle of Man by 24%, causing what Manx leaders call an “unprecedented” financial crisis.

British observers saw this as one of Gordon Brown's harshest ways to deal with the Isle of Man's status as a "tax haven" and they said it has the potential to change life for the worse on the island in the future.

London slashed £140 million (US$229.5 m) off the tax haven’s £572 million (US$938 m) annual budget. And they did so unilaterally. The sudden cut eventualy could amount to about half the total Manx government budget. It also ended an existing Health Care Agreement that provided services to the island's people.

The island’s chief minister, Tony Brown, (left) told Tynwald, the Manx parliament, that the deal imposed by the UK was non-negotiable. Mr Brown added: “This situation is clearly extremely serious for the island and unprecedented."

Violation of 400 Year Old Treaty

This appears to be in violation of a 400-year-old customs revenue-sharing agreement between the Isle of Man and the UK. The annual payments by the UK are not a subsidy, but revenue sharing based on a formula that pays back some of the British VAT collected on the island. Locals claim that in the past the island has received less than it pays in VAT, and that certainly will be the case now.

Left-wing British anti-tax haven groups cheered Labour's abrupt action and claimed it would put an end to what they claimed, without proof, is massive tax evasion on the Isle of Man.

Credit Rating at Issue

Having suddenly lost 24% of its planned revenues, the credit rating company Moody's has placed the island’s credit rating under review. The current Triple-A status may be downgraded because of the 24% reduction. This could have a significant effect on life on the island and ultimately impact upon its status as a leading tax haven.

Banking, high caliber legal, accounting, insurance and other financial services are available on the island. In spite of their ancient history, banking on the offshore islands is modern, sophisticated and user-friendly. Total deposits in the 47 banks in the Isle of Man banking system in 2009 exceeded £98 billion (US$156.5 billion).

Good Record

Only recently I wrote an article here extolling the superior status of the Isle of Man and its management as an offshore financial center.

I noted that  the island's free market  approach had reaped rewards. The island has enjoyed 26 consecutive years of growth. It has no national debt, an unemployment rate of just 2.2% cent, and has avoided the global recession. Per capita income 24% lower than Britain’s in 1996, is 18% higher now at about $35,000.

What Brown is trying to destroy is a well-regulated and universally recognized high quality offshore center for financial services.

History

The Isle of Man came under English control in the 14th century. During this period the Isle was dominated by the Stanley family, who also held the title of Earl of Derby, who had been given possession of Man by King Henry IV. In 1703 the Act of Settlement secured peasant rights and marked the beginning of a move away from feudal government.

In 1765 the British Crown secured greater control over the island paying a price of £70,000 without incorporating it into Great Britain, laying the basis for the island's status as a Crown dependency. In 1866 greater autonomy was restored to the island's parliament and a full transition to democracy began.

The Isle quickly developed as a finance center and tourist destination, becoming increasingly prosperous during the 20th century.

The Future

Perhaps the Isle of Man may wish to assert its constitutional independence in the face of this blatant violation of a 400 year old treaty -- especially since the Labour government has made clear its hostile intention to destroy the island's major source of income. 

Then too both the Isle of Man and the UK may be saved by the ascendency of a Conservative Party government in the 2010 elections. Labour is now trailing in all the polls.

Haven Panama – With My Apologies

Earlier today (see below) I took to task one Frank De Lima, identified by Reuters as a "top economic adviser" to Panama’s president-elect, Ricardo Martinelli (left). My concern was a statement attributed to Sr. De Lima that: "The perception that Panama is a tax haven is totally false."

With my usual editorial restraint, I called Sr. de Lima’s statement stupid and false, suggesting he should be fired even before his job began, because he didn’t know a tax haven even when he was living in one.

Correction

Fortunately for the sake of truth and accuracy, our friend, Panama attorney, Rainelda Mata-Kelly, (left) and a member of the Sovereign Society Council of Experts, read my raving and quickly straightened me out.

She wrote: "The argument that Panama is not a tax haven is based on the fact that we do not discriminate between nationals and foreign residents. We tax everyone the same. Our territorial tax system, which was reluctantly recognized by the OECD as a valid tax system, only taxes income produced in the country and this applies to everyone, whether they are Panamanians or foreign residents doing business in Panama."

By that accurate definition, Panama is not a tax haven, rather a country with a territorial tax system that benefits those who wish to base their offshore business there and avoid taxes on that business.

Long History

Tax havens, suddenly in the news because of President Obama’s demagogic attacks and OECD blacklisting, have been around for a very long time.

In ancient Greece, some Greek islands were used by sea traders as places to stash their foreign shipments to avoid a 2% tax imposed by the city-state of Athens on imported goods. In the Middle Ages, Dutch traders in the Hanseatic League set up business in London where they were exempt from Netherlands taxes. Prior to the Revolution, smart American colonials traded through Caribbean ports to avoid onerous British taxes.

What Is a Tax Haven, Anyway?

I’m glad I asked that question. Let’s hope I can answer it satisfactorily.

Simply put, a "tax haven" is a jurisdiction where taxes are levied at a low rate or not at all. In that sense, the State of Florida, where I live, levies no income tax, so it is a tax haven.

Tax havens benefit individuals and businesses worldwide because they create tax competition among governments -- and that means choices and cost savings.

Avoidance, Not Evasion

Geoffrey Colin Powell, a former economic adviser to the tax haven Channel Island of Jersey, claims: "What identifies a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." (Keep in mind that tax avoidance is legal and smart. Tax evasion is illegal and dumb).

Some have suggested that any country that modifies its tax laws to attract foreign capital should be considered a tax haven. Others say the central feature is that tax haven laws can be used to evade or avoid foreign tax laws.

GAO Definition

In a 2008 report on the use of tax havens by American corporations, the U.S. Government Accountability Office never found a satisfactory definition of a tax haven but they suggested the following characteristics indicate a tax haven: 1) no or nominal taxes; 2) lack of effective exchange of tax information with foreign tax authorities; 3) lack of transparency in the operation of legislative, legal or administrative provisions; 4) no requirement for a substantive local presence; and, 5) self-promotion as an offshore financial center.

By some of these GAO standards, Panama might qualify be a tax haven.

Ring Fencing

What especially upset the anti-tax haven brains at the Paris mansion that houses the Organization for Economic and Community Development (OECD) was what they termed tax "ring fencing" -- meaning jurisdictions that offered favorable tax breaks to foreign companies and investors, but discriminated against locals by taxing domestic income.

Such two-tier tax systems have all but disappeared among smart tax havens who answered this complaint by abolishing all corporate taxes. Such zero tax regimes are now in place in the Isle of Man and the Channel Islands. By this measure Panama is not a tax haven.

OECD Nonsense

When the mighty G-20 met in London last month, these great statesmen, detached from reality, mounted their phony attacks on tax havens disregarding any of the definitions above.

For propaganda purposes, the G-20 leaders, (President Obama included), decided to define "tax haven" to suit their political and tax needs. Using taxspeak, it is what they say it is.

Thus tax haven now means any jurisdiction that does not automatically turn over to the U.S. IRS, or any foreign tax collectors, requested information concerning one of their citizens who dares to have an offshore bank account or to do business offshore – a nation’s bank secrecy and financial privacy laws, be damned.

Bottom Line

So now a "tax haven" is any place the tax hungry welfare states of the G-20 say it is.

But don’t let these left-wing tax hounds steal the right to define in this war of words.

You and I know that there are very strong moral, economic and political reasons for tax havens. Click on the preceding web link and Dan Mitchell of the Cato Institute will explain in even greater detail.

Thank you, Rainelda.

President Martinelli could use your talents in the new government. You made us realize that the Republic of Panama is, (and is not), a tax haven.

Either way, we still love Panama for no taxes, asset protection, maximum privacy and residence and citizenship for foreigners – and my apologies to Sr. De Lima.

How to Gage the Coming Failure of the London G-20 Meeting

James Kirkup has a very astute observation inThree Line Whip blog published by The London Daily Telegraph about how to gauge the success of the G-20 summit that is to convene in London next week on April 2nd.

Kirkup writes: "The more you hear Mr Brown, Mr Obama and the rest talk about tax havens, the more they have failed to agree on more important things. No one likes tax havens. They're the low-hanging fruit of the G-20 process; saying rude things about the Swiss and the rest is pretty easy and uncontroversial. But it's also missing the point. This crisis didn't begin in Guernsey or the Caymans, it began in New York and London."

Orchestrated Anti-Tax Haven Blather

For weeks now the liberal world media dutifully has been repeating dire threats against so-called "tax havens" from the big spending, high taxing, anti-tax competition  likes of Germany's Merkel and France's Sarkosy. Even President Obama allowed his less than impressive Secretary of the Treasury to make some noise against tax havens.

The orchestrated battle of words hurled at offshore financial centers got so heated that British PM Gordon Brown felt obliged to drastic demand for "the end of tax havens." 

This belated anti-tax haven baloney comes from Her Majesty's first minister whose government is in charge (and has been for a decade) of the United Kingdom's many tax havens in its overseas territories (Bermuda, the Cayman Islands, British Virgin Islands, the Turks & Caicos) and its Crown Dependencies (the Channel Islands of Jersey and Guernsey and the Isle of Man), plus Gibraltar.

Does the Rt. Hon. Gordon believe that the City of London really can absorb all the dispossessed refugee bankers and trust officer that will flood in from these British world-class financial centers if he and the G-20 high tax goons shut them down? (Some unprincipled candidates, desperate for re-election, will do just about anything for votes!)

Spend vs. Regulate

The proponents claimed the G-20 meeting was not only going to solve the international economic crisis, (either by more Obama stimulus spending, or forced global regulation), but for desert, the G-20 would serve the collective severed heads of all tax havens displayed on a platter.

This entire hypocritical anti-tax haven campaign, as I have oft noted, is but an extension of the phony blacklists that have streamed for years from the tax-exempt minions at the Paris headquarters of the Organization for Economic Cooperation and Development (OECD), a taxpayer financed, pro-tax mouthpiece for the G-20 major nations who pay their salaries.

The OECD invented the blacklist and has used it skillfully as a public relations ploy to smear tax havens.

But in a classic case of removing the wind from the sails, the OECD blacklist ploy deflated when Switzerland, Austria, Luxembourg, Belgium, Hong Kong, Singapore, Liechtenstein, Andorra and Monaco, among others, all announced their agreement to broader but limited tax information exchange.

Even German foreign minister Steinbrueck, one of the most caustic anti-tax haven critic, has said he does not think G-20 leaders now would come up with a blacklist of tax havens. "As far as I see, there will be no such list at the London meeting," he said.

Despicable Communiqué

When I asked one the leading American tax experts, Dan Mitchell (left) of the Cato Institute, what he thought the G-20 outcome might be he said: "To be honest, I'm not sure what to expect from the G-20 meeting, other than a despicable communiqué attacking tax competition. My guess is that the real enemy is still the OECD, and the G-20 is just engaging in public relations warfare."

As The Telegraph's James Kirkup writes: "The transatlantic disagreement over stimulus vs. regulation isn't a full-blown row yet, but it's not far off, and the still-skeletal Obama administration has enough worries at home without looking for more abroad. Better for the president to play safe and sign something anodyne in London."

List Grows Long

The Swiss daily Tages Anzeiger reported that in a letter dated March 5 to British Chancellor Alistair Darling, OECD chief Angel Gurria provided an anti-tax haven blacklist including Switzerland and Singapore, as well as territories such as the Cayman Islands, Andorra and Montserrat.

The OECD branded 46 countries and territories for "insufficient progress" in meeting standards on tax cooperation and banking secrecy. (To the OECD that means an end to all financial privacy and automatic exchange of tax information among nations, as well as uniform higher taxes in all jurisdictions).

The OECD list also included Costa Rica, Chile, Grenada, Guatemala, Hong Kong, Liberia, Panama, the Philippines, San Marino and Uruguay, as well as Gibraltar, Guernsey and Jersey and a host of Pacific and Caribbean islands.

How Many Legions?

But as the brutal Soviet dictator, Josef Stalin was reportedly to have said about the influence of his enemy, His Holiness, the Pope: "How many legions does the Pope have?"

The Pope was said to have responded through Stalin's Foreign Minister, Molotov: "Tell your master he will meet my legions in Eternity."

Well, the OECD is loud and demanding, but it has neither any enforcement legions and certainly not any heavenly allies.

The Tax Haven Test

So remember that on April 2nd, if tax havens and offshore finance are anything more than a minor part of the "global new deal" struck in London, then the G-20 global economic meeting will have failed.

And no matter what the G-20 does, tax havens will still be with us, fortunately.

* To learn more about the economic benefits of tax havens, click here:
* To learn more about the moral case for tax havens, click here:
* To see why anti-tax haven demagoguery is misguided, click here:

Blacklist Fades to Gray, Then Disappears

 

Like that illusive Cheshire Cat in Lewis Carroll's Alice in Wonderland that appears and disappears at will, the threatened G-20 "blacklist" of  allegedly disreputable tax havens seems suddenly to have evaporated into the murky international fog.

You will recall that at a scheduled April 2nd "G-20" London meeting of major nations, dominated by high tax welfare states, it was expected the group would issue a new anti-tax haven blacklist, with Germany and France in the lead pushing for condemnation of even Switzerland, the cleanest and most respected of all offshore financial centers.

What Tax Bullies Really Want

In truth, financial cleanliness has never been the true objective of the high tax nations that make a habit of bullying low tax jurisdictions.

As Veronique de Rugy notes in the current issue of Reason magazine: In the part of high tax nations, "bank secrecy laws have long been seen as an obstacle to tax enforcement." As she says, supposedly by setting up "safe havens" for dollars, pounds, and euros, bank secrecy laws get in the way of these governments "forcing their high income tax rates down its taxpayers' throats."

The only way to fix this problem, the high tax welfare states argue, is for all nations to implement an automatic and unlimited exchange of information about nonresident investment. So-called tax havens, goes this line of thinking, should collect private financial data on foreigners and turn that information over to the appropriate governments.

Decade of Offshore Improvements

Most offshore financial centers, (as they now prefer to be called), have been shaken by the sudden intensification of pressure, especially after they have worked hard adapting to international demands for more transparency during the past decade.

The latest crackdown has been fueled by alleged tax evasion scandals in Liechtenstein and Switzerland in last year, the election of an avowed enemy of tax havens as U.S. president and the near collapse of the global banking system -- which the more radical anti-tax haven critics brazenly blamed on tax havens.
Jean-Claude Juncker (left), Luxembourg's Finance Minister responded on that point by saying: "Imagine for a moment that Switzerland, Austria and Luxembourg did not have banking secrecy six months or a year ago. Do you really think that the financial crisis would be any less serious? There is no link between banking secrecy and the global economic crisis."

American Hypocrisy

The U.K. Channel Islands (Jersey, Guernsey) ten years ago adopted legislation making foreign tax evasion a crime; other U.K. offshore centers (Cayman Islands, Bermuda, British Virgin Islands) followed suit shortly thereafter.

 

  
Large countries like the United States have yet to take similar steps, no doubt because the substantial tax free deposits from foreigners in U.S. banks provide essential funding for America's trillion dollar budget deficits.

Expert observers, including the International Monetary Fund, have regularly acknowledged U.K. offshore territories' transparency and supervision as amongst the toughest in the global finance industry.

The reputation of the offshore centers like Switzerland and the U.K. Crown Dependencies (Isle of Man, Channel Islands) and U.K. overseas territories, such as Bermuda and Cayman for probity, professional skills and financial sophistication enables them to attract capital from around the world. Such offshore capital is injected into U.K., Europe and the U.S. banking and securities markets, creating crucial connections with such centers.

Ten Years of Phony Blacklists

For more than a decade high tax nations have condemned as aiding and abetting massive tax evasion, any offshore jurisdiction that has low taxes, respects financial privacy and guarantees bank secrecy.

These anti-tax haven, anti-financial privacy campaigns have been spearheaded by the Organization for Economic Cooperation and Development (OECD), a paid, pro-tax mouthpiece for the major nations. The OECD invented the blacklist and has  used it skillfully as a public relations ploy to smear tax havens.

Capitulation

Indeed, the OECD had at the ready its latest blacklist for the G-20 London meeting when an unexpected thing happened. Many of the countries that were destined to be smeared in the list agreed in the future to apply OECD standards allowing exchange of tax information among all nations.

Now the pursuit of specific tax evaders by foreign countries supposedly will be made easier by greater co-operation from Switzerland, Austria, Luxembourg, Belgium, Hong Kong, Singapore, Liechtenstein, Andorra and Monaco, among others. All announced last week their agreement to broader but limited tax information exchange.

Never Enough
But don't count on the tax collectors to stop now. German Finance Minister Peer Steinbrueck (left) has told Der Spiegel that he wants countries like Switzerland to reveal  the names of all their account holders "even when there's no concrete suspicion of tax evasion."

 

Nevertheless, Steinbrueck, one of the most caustic anti-tax haven critic, said on Friday he did not think G-20 leaders meeting in London next month now would come up with a blacklist of tax havens. "As far as I see, there will be no such list at the London meeting."

German Chancellor Angela Merkel said she could not imagine any country that accepted OECD standards for exchanging tax information would be on a blacklist, but she gloated that the mere talk of this "virtual list" had already had "positive" effects.

International Blackmail

So "positive" that the much herald G-20 "blacklist" suddenly has faded into momentary obscurity, no doubt to be kept in reserve for a re-appearance in the next high tax onslaught against low tax jurisdictions which, in my opinion, is just a matter of time.

But I suggest that we call all these phony campaigns what they really are -- not a blacklist, but blackmail.

The Sovereign Society is a recognized voice in the complex offshore world.  Join the Sovereign Society and keep informed.

Second Dissolution of the British Empire (What's Left)

"I have not become the King’s First Minister in order to preside over the liquidation of the British Empire."

Winston Churchill’s famous statement in November 1942, just as the tide of the Second World War was beginning to turn towards victory, pugnaciously affirmed that great British leader's loyalty to the global colonial institution he had served for most of his life.

Britain fought and sacrificed on a world scale to defeat Hitler and his allies -- and won. Yet less than five years after Churchill’s defiant speech, the British Empire effectively ended with India's independence in 1947 and the end of the British Mandate in Palestine in 1948.

Color Him Brown

And now the Rt. Hon. Gordon Brown, the current and dour British prime minister, seems bent on causing another major setting of the sun on what little remains of Britain’s truncated empire.

Brown is in major political trouble. Under pressure from unions and a nose diving economy, suddenly he is all too willing to throw to the leftists wolves Her Majesty's overseas territories. Most of these are leading tax havens nurtured as such by London for the last half century, (and by Brown himself, in a decade as Chancellor of the Exchequer).

Months ago Brown was promoted by admirers as the man to save the world from economic catastrophe. Now he has his hands full just trying to save his own job. The Conservative Party and its well spoken young leader, David Cameron, have a 20-point lead over Labour in polls in the run up to the general election in 2009.

Bank Bailouts Unlimited

But if you think Bush and Obama have been criticized for trillions of dollars in U.S. bank bailouts, Gordon Brown is being blasted by both right and left for even larger U.K. bank bailouts.

An estimated £1.2 trillion (US$1.7 trillion) has already been spent (with no end in sight) on the Royal Bank of Scotland, HBOS, Lloyds, and Northern Rock, all of which the U.K. government now controls (along with billions in toxic assets).

One British newspaper headlined: "Brown does a U-turn on tax havens with blacklist." And Brown chose to make a big pitch for his apostasy in his address to the U.S. Congress last week, no doubt trying to grab on to President Obama's flapping anti-tax haven coat tails.

Brown Blacklist

U-Turn Brown is preparing to unveil a blacklist of what he now suddenly considers to be "harmful tax havens" to be published before the London G-20 meeting next month, which he chairs.

This phony list is expected to include offshore centers, long overseas territories of Britain, including the Cayman Islands and Bermuda. Other U.K. OTs include the British Virgin Islands and the Turks and Caicos Islands. Add to the list the Crown Dependencies of Jersey, Guernsey and the Isle of Man, all major offshore financial hubs tied to the City of London.

So unique are these financial centers that hundreds of thousands of investors and business persons worldwide use the services of their investment houses, banks, accountants, lawyers, insurance brokers, and trust and corporation services located there.

Hypocrisy Squared

Brown's move is a radical departure from the prime minister's historic position of protecting the pre-eminence of Britain's financial services industry, both in London and in the overseas territories.

His move is a crude political attempt to counter growing criticism at home for his bank bailouts, and pressure from high tax France and Germany that make the specious charge that the U.K., like Switzerland, is an obstacle to imposing a global "transparent financial system" -- meaning they demand an end to financial privacy everywhere.

Face it, dear readers, this isn't about transparency. This is about destroying tax competition and the forced exaction of confiscatory taxes internationally without regard for individual rights.

Offshore Centers Have Reformed

Brown, is certainly no Churchill, not even a pale imitation of his predecessor, the affable Tony Blair. But there is a special irony in Her Majesty's government suddenly attacking the British offshore tax havens that it created with great care since the end of World War II.

Over the last 15 years the Blair/Brown Labour governments in London demanded and got substantial reforms in all U.K. offshore financial centers, including statutory transparency, an important fact Brown never even mentioned in recent days when he suddenly turned on the offshore territories with his bogus attacks.

These offshore reforms are now written into local laws in these semi-independent islands. They include: 1) much tighter financial regulatory reforms; 2) "all crimes" money laundering and foreign tax evasion statutes; 3) extensive banking client surveillance; 4) increased cooperation with foreign official authorities seeking tax and other information about persons and legal entities based on the islands; 5) a major weakening of previously strict financial privacy laws and, 6) imposition of the EU savings tax directive which all of these offshore centers now enforce and collect.

Brown’s Betrayal for Political Gain

In fact Bermuda, the Cayman Islands, the British Virgin Islands, the Isle of Man, Jersey, and Guernsey each already have signed Tax Information Exchange Agreements (TIEAs) with the United States and many other countries. What more transparency does galloping Gordon expect?

It is obvious that Brown, just another desperate socialist politician, is willing to disrupt, if not destroy, the economies of these loyal British offshore centers, jeopardizing tens of thousands of jobs in the midst of a worldwide recession.

All this would be amusing if it were not so tragic.

** To better understand the situation with the U.K. Overseas Territories and the Crown Dependencies, my book, Tax Havens of the World, gives you a complete description of their origins as tax havens, their uses and survival chances. Click here

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A Taxing Situation

As you read what follows, keep in mind the following dictionary definition:

demagogue - noun, verb, -gogued, -goguing. 1) a person, esp. an orator or political leader, who gains power and popularity by arousing the emotions, passions, and prejudices of the people. 2)  to treat or manipulate (a political issue) in the manner of a demagogue; obscure or distort with emotionalism, prejudice, etc.

It seems taxes have always been a sexy issue, at least for the last millennium since Lady Godiva, that notoriously anti-tax Anglo-Saxon noblewoman who, according to legend, rode naked through the streets of Coventry in England in order to gain a remission of the oppressive taxation imposed by her husband on his tenants.

Naked Demagoguery

From all historic accounts, at least Lady Godiva was sincere about her tax protest.

On February 17, 2007 when the junior senator from Illinois introduced his bill, the Stop Tax Haven Abuse Act, he issued a ringing statement in which he decried what he claimed was an annual loss of $100 billion due to alleged offshore tax evasion by Americans.

"This is a basic issue of fairness and integrity," intoned then Senator Barack Obama. "We need to crack down on individuals and businesses that abuse our tax laws so that those who work hard and play by the rules aren’t disadvantaged." In his 2008 presidential campaign, candidate Obama often repeated this theme to applause, promising to crack down on tax cheats.

Do As I say, Not As I Do

Fast forward to 2009. President Obama's choice to be Secretary of the Treasury is the supposedly indispensable Tim Geithner (who?) -- thus making a tax cheat/incompetent who owed about $120,000 in back taxes head of the Internal Revenue Service.

Asked about the propriety of nominating a Treasury secretary who was a major tax scofflaw, Obama characterized the eight-year tax evasion as "an innocent mistake."

Than came ex-Health and Human Services nominee, ex-Senator Tom Daschle, who was forced to pay back almost $200,000 in taxes with interest (but no penalties) on the free car and driver he had been receiving from a Wall Street friend for the past three years. And there was Nancy Killefer, who withdrew her nomination for Obama's chief performance officer, because she too owed back taxes.

Not to mention my former House colleague, Rep. Charlie Rangel (D-NY), who is embroiled in a controversy over non-payment of years of back taxes on unreported income from a beach front villa in the Dominican Republic. Don't worry folks, Charlie only heads the House Ways and Means Committee that writes all the tax laws.

Dutch Treat

But this tax hypocrisy by politicians is not confined to this side of the Atlantic Ocean.

Leftist members of the Dutch Parliament are in full cry against Princess Maria Christina of the Netherlands, the youngest of four daughters of the late Queen Juliana of the Netherlands and her Prince consort Bernhard.

It seems that Princess Christina, who lives in London and also holds British citizenship, has been exposed as being the beneficiary of private foundations that act on behalf of members of the Dutch royal family, both registered in the Channel Island's tax haven of Guernsey where they enjoy legal tax exemption!

"Eh gad," say the Dutch parliamentarians, "this must be investigated!" (Forget the fact that the Netherlands is possibly the world's leading tax haven for offshore registration of corporations that bring in millions of tax dollars).

It is not enough that the Princess was forced to by Dutch law to renounce her and her children's rights to the throne before converting to Catholicism when she married a Catholic in 1975 without the permission of Parliament.

Although the Guernsey trusts are fully legal, MPs say Christina should act as a role model. "She should not be looking for financial loopholes to avoid paying the full amount of tax,’ Labour MP Diederik Samsom said. (Someone should investigate him!)

British Blather

And not be outdone in hypocrisy, in London the British Left is demanding the political scalp of one Glen Moreno, the chairman of the Pearson corporation, which owns the Financial Times, who was appointed as acting chairman of the government’s UK Financial Investments (UKFI) company last month. UKFI was set up to manage the billions of pounds of public money that is helping to keep troubled British banks afloat.

Moreno's sin? Until last April he was a trustee of Liechtenstein Global Trust, where allegedly some British citizens had accounts that may have been used for tax evasion.

Give ‘Em a Hand

So I will again quote the late, distinguished Judge Learned Hand of the U.S. Court of Appeals in New York, who in a memorable tax case dissent, offered these timeless remarks: "There is nothing sinister in arranging one's affairs so as to keep taxes as low as possible...nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions." [IRS Com. v. Newman, 159 F2d 848, 851 (2nd Cir 1947)]

I don't know which is worse -- the taxes or the politicians’ demagoguery about taxes. Take your pick.

*** If you want to know the true facts about tax havens, our web site is your best choice for fair and balanced offshore news. We tell you all about legal offshore financal centers and tax havens, tax-free banking, investment and legal possibilities in my book, Where To Stash Your Cash Legally: Tax Havens of the World.

British Left Attacks U.K. Tax Havens

LONDON: This week the British government holds meetings with its Overseas Territory (OT) leaders. After a series of radically left attacks in Britain in recent days aimed at these long-established U.K. tax havens, this meeting should see some hot debates, notwithstanding traditional British civility.

Some Labour Party leaders and their socialist and trade union allies are using the British government's multi-billion dollars bailout of selected banks as an excuse to demand that aided banks be ordered to end all of their offshore activity in tax havens. These radicals insist that now that the British Labour government owns a stake in the banks, the government should force policy decisions on the banks' managements.

In Britain, the government holds as much as 6% of Royal Bank of Scotland and up to 43.5% of a combined HBOS and Lloyds TSB. U.K. banks that benefit from the publicly-funded bailout have hundreds of subsidiary firms in tax havens such as the Cayman Islands, Jersey and The Bahamas, and radical leftist are demanding that all such offshore entities be abolished.

Leftist Radicals in Full Cry

The U.K. Treasury should tell banks receiving investment from the government to close their operations in offshore tax havens, said Vince Cable, a Liberal Democrat lawmaker. "It seems totally inappropriate for banks funded by the taxpayer to be systematically avoiding British tax or helping customers to do so,'' Cable said in an interview. "The anomaly of the nationalized banks will bring this issue to a head.''

The research director of the radical socialist Tax Justice Network, said: "I think these banks should close down their offshore subsidiaries. This is because the government cannot have a stake in companies that undermine the government. Closing them down could be done as it is a commercial choice to operate in tax havens."

At stake could be the very survival of existing U.K. tax havens and billions in assets in places such as Bermuda, the British Virgin Islands, the Cayman Islands, the Turks & Caicos Islands, as well as the Crown Dependencies of the Channel Islands (Guernsey, Jersey and Sark) and the Isle of Man.

Labourite Anti-Havens Record

Ever since the Labour government came to power in 1997 under Prime Minister Tony Blair, the U.K. offshore tax havens have been forced to tow the leftist line laid down by the Foreign Office in London. Following U.K. orders, they lifted strict bank and financial privacy laws, enacted laws making tax evasion by foreigners a crime, strengthened anti-money laundering laws and mandated exchange of individual's tax information with other governments -- the free booting offshore "good old days" came to an end.

Underlying these forced "reforms" has been Left Labour suspicions that Her Majesty's offshore havens are really exotic fronts for massive tax evasion. That sour view has been balanced by the very substantial income, taxes and the havens' valuable accommodation of the flow of British worldwide finance.

Unintended Consequences

One unintended result has been a substantial movement of assets and cash away from the U.K. OTs to non-U.K. jurisdictions such as Switzerland, Singapore, Hong Kong and Panama, much as high British taxes have driven U.K. corporations to move to low tax countries.

Another perhaps unexpected result has been a major clean up of offshore jurisdictions, now with stricter rules in many areas than even those honored in the breach in the City of London or New York, the world's two major money laundering venues. But this reform is ignored by the anti-tax haven haters of the Left.

American Cousins

But here in the United States similar anti-capitalist noises are being heard from the American Left and the likes of AFL-CIO head Tom Sweeny, based on the U.S. bank bailout.

More importantly, as I have noted before, this sort of fascist/socialist state control of banks and banking policies is the heart of proposed anti-tax haven legislation sponsored by Senator Barack Obama.

It looks as if the massive Bush/Paulsen bank bailouts may give a leftist new U.S. government, should there be one, and opening to do all it could to destroy offshore tax havens -- and the rights of millions of until now free Americans to invest and bank offshore.

** There are many legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash: Click Here. And if you're interested in Switzerland, Click here for Swiss Money Secrets.

Liechtenstein Bends -- Just a Little

"We will not give up bank secrecy," said Otmar Hasler, the prime minister of the Principality of Liechtenstein in a speech last week, "but we are willing to collaborate with other nations when it comes to the misuse of bank secrecy laws for tax evasion."

Prince Alois, hereditary ruler of Liechtenstein, confirmed on Friday that his tiny Alpine tax haven was seizing the initiative in response to foreign criticism of its financial sector’s strict bank secrecy laws. "The time has come for us to base our system of mutual legal assistance and administrative assistance in tax matters on a new foundation," the Prince said in his traditional national day speech to the nation.

Pressure from the Left

What nudged the historically conservative Liechtenstein into these latest proactive policies was a theft from the LGT Group, a bank owned by the Liechtenstein royal family. A known felon named Heinrich Kieber was paid more than US$7 million by the German secret police for stolen CD disc said to contain confidential lists of the bank's foreign clients. I have previously commented on this gross violation of Liechtenstein's bank secrecy and criminal laws.

At the time the LGT Bank theft became public in February, Prince Alois nailed it when he said: "German authorities paid a criminal to obtain stolen data. We reject this action." More to the point, Alois praised the several laws Liechtenstein has passed since 2000 to enhance transparency and combat money laundering. And he pledged, then and now, that the country won't surrender its policy of strict bank secrecy.

Billion Dollar Question

So for the world beyond the question arises -- do these latest actions by the government of Liechtenstein amount to a surrender or major compromise of what are possibly the strictest bank secrecy laws in the world?

I don’t think so, but before I answer that crucial question in detail, a review of recent history is in order -- especially because under a barrage of attacks from the world's political Left, since 2000 the Principality carefully has revised its laws to become more transparent and cooperative with other nations in cross-border criminal matters.

Liechtenstein was one of the first nations in the world to adopt specific offshore asset protection laws, as far back as the 1926. Its economy is diversified, and it is one of the most heavily industrialized countries in Europe, based on per capita population, but financial services provide some 30% of government revenues, so anything that tarnishes the country’s reputation causes problems.

Tax Blacklist

Blacklisted in 2000 by the left leaning, Paris-based Organization of Economic Cooperation and Development's (OECD) and its Financial Action Tax Force (FATF) as allegedly lax on money laundering, Liechtenstein subsequently toughened its banking laws and made major efforts to clean up any questionable financial practices. Because of these recognized improvements, in 2001 the country was removed from the OECD/FATF money laundering blacklist.

At the time, Liechtenstein adopted tough anti-money laundering laws that cover all crimes; created a Financial Intelligence Unit (FIU) to oversee the financial sector; imposed much stricter "know-your-customer" and suspicious activity reporting requirements; and to some minor degree, eased its historic, very strict financial secrecy now under attack once again.

The reforms also abolished the former right of trustees and lawyers not to disclose the identity of their clients to banks where funds were invested or deposited. Liechtenstein has ratified the European Anti-Laundering Convention and defines laundering as dealing with the proceeds of "any serious crime." It also signed a 2004 mutual legal assistance treaty (MLAT) with the United States.

Proud Tax Haven

Liechtenstein’s longstanding tax haven status was the source of a second major attack by the OECD, which in June 2000 placed the principality on its highly questionable 35-nation "harmful tax practices" blacklist where it still remains. By the unreasonable OECD definition, any nation that imposes no taxes on foreigners doing business there is engaged in "unfair tax competition." The true purpose of this pro-high tax list is as a brush for major G-7 welfare states with which to tar low tax nations that successfully compete with them for tax dollars.

In spite of all this outside pressure, Liechtenstein has refused to surrender its financial privacy laws to appease the OECD demands for tax information exchange or the U.S. demands for unfettered access to financial records. That, and an established history of excellent asset protection and private banking, is one of the major reasons this tiny Alpine redoubt has been one of my top choices for offshore financial activity and estate planning.

Foundations Accused

Liechtenstein was one of the first nations in the world to adopt specific offshore asset protection laws, as far back as the 1926. One of the leading legal entities has been the private family foundation (Stiftung) derive largely from the Swiss Civil Law and freely adapted to the circumstances of Liechtenstein. It has been the foundation that foreign tax collectors have attacked as being used for tax evasion, especially because all parties to the foundation are secret unless revealed by judicial action.

On June 30, 2008 Liechtenstein’s parliament approved amendments to the country’s law on foundations making them more open and imposing certain restrictions intended to curb their use for tax evasion, but not compromising traditional secrecy.

Fleeing Cash?

But cash is a fungible commodity and there are reports that individuals are transferring money from Liechtenstein to Panama, Singapore and other offshore centers with strict privacy laws. One official claimed the switch was prompted by the greater focus on tax evasion after the theft of client list from LGT bank.

The Financial Times reported (Aug. 15): "One beneficiary could be Panama. The Sovereign Society, a U.S. publisher specializing in offshore planning, says the country has 'iron-clad financial privacy laws' and describes it as 'an ideal 21st century offshore haven in a world where few remain'". Singapore and Hong Kong benefitted in 2005 from Europe based cash flows when the EU tax savings took effect, according to the Institute for Fiscal Studies, an independent think-tank.

Bank Secrecy Will Continue

Liechtenstein’s banking and financial secrecy statutes historically have been considered stronger than even those that apply in nearby Switzerland. Tax evasion is not a crime in the country and until now tax information rarely has been shared with foreign governments. Now this may change to a limited degree.

Bank secrecy is an established legal obligation under Liechtenstein law and may be lifted only by order of a local court. At present a court order is required to release or examine an account holder’s bank records.

Foreign governments or creditors seeking bank records face a time consuming and costly process. Liechtenstein is not obliged to honor a foreign court’s information request. Such requests may be approved if it can be shown that the alleged offense involves a clear violation of local Liechtenstein law. The cost and time required for such appeals is a deterrent to foreign based claims and lawsuits in many cases, or they act as strong inducements for settlement of claims.

Prime Minister Hasler recognizes that even the hint of liberal tax information co-operation could unsettle many members of the principality’s large financial services sector which has flourished over the years because of its secrecy laws. The government faces elections in February 2009 and bank secrecy remains a highly sensitive issue. "We are in a pre-election period. So such a proposal is extremely controversial. But I’m convinced it’s essential to implement this strategy for Liechtenstein’s future," said Hasler.

Firm Conclusion

After conferring with trusted investment and legal experts with whom we work in Liechtenstein it is my judgment that a very limited cooperation on tax information with foreign governments in individual cases may now be allowed – but absolutely no fishing expeditions. But don’t expect the fondest dreams of the tax collecting Left to come true – Liechtenstein and its historic bank secrecy will stand firm.

* I am the author of a comprehensive work, The Liechtenstein Report, which explains the many legal advantages of banking and asset protection in Liechtenstein. Click here for more information.

The Nightmare of Leftist Paranoia

Human beings seem to enjoy conspiracy theories.

When all else fails in explaining some major event, such as the 9-11 terror attacks, an assassination, or especially events involving lots of money or alleged corruption, people always seem ready to blame "them" -- whoever "them" may be. There must be, we are told, some secret, unlawful, or evil purpose behind the surreptitious plan du jour formulated in secret by the unknown few.

The X-Files, currently the subject of another new movie, was a popular U.S. television show a few years ago that followed the investigations of two intrepid FBI agents, Fox Mulder and Dana Scully, who were sometimes assisted by a group of conspiracy theorists known as "The Lone Gunmen."

Many of the episodes dealt with a plot for alien invasion overseen by secret elements of the U.S. government and an even more mysterious international "syndicate". The famous tag line of the series, "The Truth Is Out There" can be interpreted as reference to the illusive nature we humans expect of all conspiracies.

Tell It Like It Is

But what about situations in which clear factual, explanations are offered for horrific events. Read Adolf Hitler's Mein Kempf (still in print) and you will find a detailed description of the horror that eventually engulfed Nazi Germany and the world.

There are others that have made clear their nefarious plans to curtail freedom.

For well over a decade various and sundry ultra-leftist groups and individuals have detailed plainly their worldwide goals to destroy all financial privacy, impose uniformly high taxes and crush tax havens.

Writing in the July 22 issue of The Nation, ("Attack of the Global Pirate Bankers") James S. Henry, identified as "a New York-based investigative journalist who has written widely on the problems of tax havens," lays out what he perceives to be the stark horrors of tax havens, all of them no more than festering sores on the global body politic, economic boils to be lanced and cauterized by forceful government action.

Henry notes the participants in this long-running anti-tax haven crusade and praises them for organizing "a global alliance" against offshore banks and tax havens, including suspect groups such as "..Tax Justice International, Oxfam GB, Friends of the Earth, Global Witness and Christian Aid...converging on a new global campaign around the issue of havens and offshore tax evasion. They've been enlisting support for this effort from countries like Norway, Chile, Brazil, Spain and France, organizations like the UNDP, the World Bank and even the International Monetary Fund," he claims.

Bankers and Bribes

What has given fresh impetus to the war against financial privacy has been the stupidity of UBS private bankers who may have advised a select few wealthy Americans on how to evade taxes, the official German bribery of a criminal Liechtenstein bank employee in order to obtain a stolen list of foreign account holders, and a series of noisy, demagogic anti-tax haven hearings in the Democrat controlled U.S. Senate.

Oh -- throw in a compliant leftist media that loves to sensationalize, but not authenticate, the wildest of anti-tax haven charges.

"Cui bono?"

Another epistemological "rule of thumb" that seems to be a feature of human consciousness can be applied to almost any mystery involving other humans. That is asking the question: "Cui bono?" "Who stands to gain?" This reaction to the hidden motives of others appears to be universal.

So who stands to gain from the ultimate destruction of financial privacy, the right to transfer funds and invest freely?

Of course the major beneficiaries are the free spending, power seeking, leftist politicians of the world and their official tax collectors, the IRS certainly included.

According to The Nation's indignant article: "In the last thirty years, fueled by the globalization of financial services, lousy lending, capital flight and mind boggling corruption, a relatively small number of major banks, law firms, accounting firms, asset managers, insurance companies and hedge funds have come to launder and conceal at least $10 trillion to $15 trillion of private untaxed anonymous cross-border wealth."

Ultimate Libertarian Pipe Dream?

As in the case of Hitler's Mein Kempf, be forewarned.

The Nation's Mr. Henry goes on to issue his clarion call: "Rich people the world over, including tens of thousands of wealthy Americans, are now free to opt in to this sophisticated, secretive, utterly unprincipled global private banking industry. They can become, in effect, residents of nowhere for tax purposes, citizens of a brave new virtual country, which offers its inhabitants unprecedented freedom from the taxes, regulations and moral restraints that the rest of us take for granted. They wield enormous political influence even without paying taxes, merely by making contributions, threatening to withhold them--or better yet, threatening to abscond with their capital unless certain conditions are met. In a sense, this is the ultimate libertarian pipe dream: representation without taxation. But it is a nightmare for the rest of us, and we must design and organize our way around it."

We beg to disagree -- but then you already knew that.

* While you still can, discover the legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash: Click Here.

* If you're interested in Switzerland, Click here for Swiss Money Secrets.

Qualified Intermediary (QI) Rule

In the wake of the allegations that the world’s largest private bank, the Swiss UBS, assisted an unknown number of their American account holders to evade U.S. taxes, last week U.S. Internal Revenue Service officials revealed plans to tighten the rules of their so-called "Qualified Intermediary" (QI) program.

The little-noticed program has come under greater scrutiny amid a widening investigation into whether UBS misused the program to help American clients evade federal income taxes by non-reporting or using legal offshore entities such as trusts or family foundations.

Under the QI program foreign banks have held billions of dollars offshore for American clients without legally having to disclose their names to the IRS. In exchange, the banks promised to know who their clients are, withhold any taxes due on U.S. securities in their accounts and send that money to the IRS. More than 7,000 foreign banks are enrolled in the program and paid about $2 billion to the IRS last year.

Bankers as IRS Spies

In effect, the IRS, beginning in 2001, forced foreign banks and financial institutions into the unwelcome role of IRS informants, a.k.a. "qualified intermediaries" (QI). To put it plainly, just as American bankers were forced to spy on their customers under the terms of the Bank Secrecy Act and the PATRIOT Act, the QI program turned offshore bankers into spies on their U.S. clients, at least in certain defined situations.

Since the imposition of the QI rules U.S. persons holding U.S.-based investments purchased through their offshore banks did have a choice: 1) they could either have offshore banks report the American holdings to the IRS, or; 2) they could have the bank withhold a 30% tax on all interest and dividends paid to them. To avoid either event, the U.S. offshore account holder investor could (and we have recommended) not hold any U.S.-based investments through an offshore bank or financial institution. No U.S. investments -- no required reporting under the 2001 QI rules.

By comparison, foreign, non-U.S. investments held offshore by U.S. persons through an offshore financial institution until now have been exempt both from the QI reporting and the QI tax withholding rules.

Under the IRS Gun

The clear threat to offshore banks that underpinned the QI rules was the real possibility that an uncooperative foreign bank would be denied access to the entire American banking system, meaning they and their clients could not to do business with the major banking system of the world.

Barry Shott, a deputy commissioner of the IRS, claims that the agency since 2001 has halted the participation in the program by about 100 foreign banks that were accused of violating QI rules. But in my observation, far fewer banks were embargoed and those that were tended to be banks located in backwater places such as Vanuatu and the Solomon Islands where Russian criminal elements had established a financial presence.

U.S. Rule Imposed Worldwide

Bent on crushing possible offshore tax evasion, in effect the IRS imposed extraterritorial tax enforcement burdens on foreign nations and their banks. Banks were forced to meet IRS established anti-money laundering and "know your customer" standards in order to get the "QI" stamp of approval. Offshore banks that qualified in the eyes of the IRS received "approved status," meaning the 30% tax on U.S. source income did not need not be withheld on non-U.S. investments, plus reduced tax rates could be applied under terms of mutual double tax avoidance treaties with the U.S.

But IRS QI approval came loaded with onerous conditions that could end customer confidentiality for American offshore investors who didn't know how to apply the rules. It also gave the IRS leverage over foreign nations when demanding exchange of tax and other financial information, although those nations, such as Switzerland, Liechtenstein and Panama, that have strict financial privacy laws, legally were able to escape the worst anti-privacy parts of the QI rules.

Understand what happened. Under the high handed QI rules, cloaked in the guise of enforcement of U.S. tax laws and threatening to deny access to the U.S. financial system, the IRS demanded and got imperial approval of all foreign nations’ banking rules and reporting requirements.

Stop for a moment and think what the reaction of American banks (and of the IRS) might be if a foreign nation ordered them to follow strict rules imposed from abroad. It is to laugh!

Tough New IQ Rules?

IRS officials now say foreign banks will be required to determine whether their clients are United States persons, and to determined possible U.S. beneficial ownership of foreign corporations and trusts with bank accounts. If they are, then the bank must let the IRS know about the client and withhold taxes on dividends in the account at rates of up to 30 %. The IRS' Mr. Shott declined to say whether the new rules would be retroactive or only apply to new clients.

The IRS says it will soon allow foreign banks in the QI program to use third-party databases, such as those from credit reporting firms, to determine who their clients really are and what taxes they should pay.

Douglas H. Shulman, the I.R.S. Commissioner, said the goal of the coming QI changes "is to get a clear line of sight into the owners of the bank account, and to know where there’s fraud." Inherent in such an over reaching statement is the misguided IRS belief that everyone with an offshore bank account is engaged in tax evasion -- and that offshore banks have a duty to act as IRS informers.

Let me suggest that it is the duty of the American government to investigate and indict anyone suspected of violating laws -- on an individual case basis. It is not the government’s duty or right to coerce offshore bankers to act as IRS agents, or to presume tens of thousands of Americans legally engaged in offshore financial activity are therefore criminals.

Conflict of Laws

It remains to be seen how any new QI rules can be made to square with strict laws guaranteeing financial and banking secrecy in many nations, such as Switzerland, Liechtenstein, Andorra, Monaco, Singapore, Belize or Panama. Typically those laws make it a criminal act to reveal any information about bank account holders, foreign or domestic, unless order to do so by a court.

Offshore banks may be forced to choose between obedience to their home country laws, or to the grasping long arm laws of the IRS.

* There still are many legal ways to bank and save taxes offshore; I tell you Where To Stash Your Cash: Click Here.  And if you're interested in Switzerland, Click here for Swiss Money Secrets.