Tax havens with funny names no laughing matter

Offshore: A cozy place to hide money

The public may learn how oodles of money is stashed in offshore tax and secrecy havens (image: Nissi Beach, Ayia Napa, Cyprus)
  • The public may learn how oodles of money is stashed in offshore tax and secrecy havens (image: Nissi Beach, Ayia Napa, Cyprus)

At least one good thing may come out of this year’s investigation of the Trump campaign’s alleged Russian ties and last year’s Panama Papers scandal. The public may learn how oodles of money is stashed in offshore tax and secrecy havens — those funny little places with names such as Mauritius, Brunei, Niue, and Vanuatu.

Don’t laugh. Various scholars figure that anywhere from $7.6 trillion to $32 trillion is stashed in offshore tax and secrecy havens. A trillion dollars is a lot of bucks. Last year, the United States’ total output of goods and services was $18.6 trillion.

View of the second largest island of the Seychelles, Praslin, “a paradise for dirty money and corruption.”

View of the second largest island of the Seychelles, Praslin, “a paradise for dirty money and corruption.”

More than 70 percent of big American companies have subsidiaries in offshore havens. Shady individuals use these havens to launder their proceeds from illegal drug and arms trafficking, stock fraud, embezzlement, and other crimes. The late gangster and financial genius Meyer Lansky was a pioneer in juggling ill-gotten gains around offshore havens. And, of course, both companies and individuals use the havens to dodge or sharply reduce taxes and regulation.

One major focus of the Trump team investigations will probably be the island of Cyprus, a secrecy haven for Russian oligarch money. For a while it wasn’t even considered a haven because its sinking banks loaned too much money to crumbling Greece. But dirty Russian money didn’t stop flowing to the island nation.

Cyprus is so cozy with Russia that it is the only European Union country that has allowed the Russian military to use its bases for operations. According to the Democratic Coalition, as related by the Huffington Post, president Donald Trump has two companies registered in Cyprus. “Trump worked with a notoriously corrupt Cypriot company to bid for [a] casino… during the Republican presidential primary,” says the publication, quoting Hong Kong’s Global Sources and Israel’s Haaretz.

Wilbur Ross, Trump’s secretary of commerce, was vice chairman of Cyprus’s largest institution, the Bank of Cyprus. He has invested $500 million in the bank, which failed once, and which has had a top officer who was an ex-KGB friend of Vladimir Putin. But since Ross made his $2.5 billion in assets by investing in troubled businesses, his Cyprus adventure may not get him in trouble. Trump, who doesn’t do much borrowing from American banks, may be able to explain any Cyprus borrowing he may have done.

Early this month, the Washington Post reported that Erik Prince, founder of the mercenary firm once named Blackwater, allegedly had a secret meeting with a Putin ally in an attempt to establish back-channel communications between Trump and Putin. The meeting was supposedly held in the Seychelles, an island country off East Africa. Tax Justice Network calls the Seychelles “a paradise for dirty money and corruption.” Former San Diego newscaster and unsuccessful mayoral candidate Dick Carlson was ambassador to the Seychelles in 1991–1992. And Erik Prince? A decade ago, the San Diego County hamlet of Potrero, near Tecate, thwarted Blackwater’s attempt to build an 824-acre training facility three miles from the town. In 2013, Prince, who is no longer with the firm, told the Daily Beast that Blackwater was “a virtual extension of the CIA.”

A year ago, investigative journalists released a trove of documents from a Panamanian law firm that specializes in setting up secret avenues for moving money around offshore havens. The resulting scandal became known as the Panama Papers. Dubious friends of Bill and Hillary Clinton were exposed as users of offshore institutions. The list included Frank Giustra, a Canadian mining magnate and crony of Bill Clinton; Marc Rich, the international fugitive pardoned by Bill Clinton; Ng Lap Seng, who was at the center of a Democratic fund-raising scandal during the Clinton years; and the Chagoury Group, a West African developer that pledged a billion dollars to the Clinton Global Initiative.

Transactions linked to that Clinton initiative occurred in havens such as the British Virgin Islands, Isle of Man, Anguilla, Cayman Islands, Bahamas, Hong Kong, Monaco, and Gibraltar.

Note the British accent. London is at the center of much offshore mischief. The Channel Islands — Jersey, Guernsey, and the Isle of Man — are havens, along with Bermuda, the Cayman Islands, British Virgin Islands, Turks and Caicos, Gibraltar, and former British colonies Hong Kong, Singapore, the Bahamas, Bahrain, and Dubai. But the United States is coming on strong — particularly Nevada, South Dakota, and Wyoming.

San Diego has had its share of offshore bank adventures. Last year, Harold Bailey (B.J.) Gallison of Valley Center got an 18-year sentence for running a pump-and-dump scheme through offshore entities. Eighteen years is a very long sentence for stock fraud, but Gallison had gone to prison before for a similar offense and had run a penny-stock brokerage house that went down ingloriously.

The most publicized offshore caper took place in the 1980s. The late J. David “Jerry” Dominelli and his lover (then named Nancy Hoover) headed a firm named J. David that supposedly specialized in foreign-currency trading. Somehow, Dominelli’s crew persuaded investors that he was a genius at trading currencies. Investors got statements indicating that they were making 40 to 50 percent a year. But, actually, he lost money when he traded currencies, so he did little of it. J. David was a Ponzi scheme. Early investors were paid off with funds from later investors. When the pyramid collapsed, Dominelli told investors and the bankruptcy trustee that he had funds in Switzerland, Austria, and the Bahamas. He didn’t. Then Dominelli went off to Montserrat in the Caribbean, promising to launch a currency-trading operation there. But he got arrested. The game was over. Investors lost $80 million. He was sentenced to 20 years in prison but got out in 10½. He died of a stroke in 2009. Hoover was sentenced to 10 years in prison but got out in 30 months. She then married two men who were genuinely rich (one died).

Former San Diego dentist L. Donald Guess had a tax-avoidance scheme for doctors and dentists. The tax havens he used were in Barbados and the British Virgin Islands. He beat the Internal Revenue Service in his first trial but got convicted later for filing false tax returns. He was sentenced to 18 months in prison.

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Until not long ago, it was possible to stash funds offshore without going to places with funny names. You could do that in just about any country, and our government (i.e. IRS) would not know. So, the really gold-plated one was Switzerland, with its bank secrecy laws. It was always assumed, and the Swiss bankers made sure you knew it, that those laws were inviolate. Ahh, but then the US went after some of the Swiss bankers who were working in the US, and who had been soliciting US account holders to hide money. That was rather dumb of the banks, notably UBS. exposing their citizens to prosecution, imprisonment and fines. When the threat was made, suddenly the Swiss saw the light and repealed the laws!

There has been a process underway to get more and more of the first-world nations to fall in line, with the result that hiding your wealth (and avoiding paying taxes on the income generated) is much harder to do. The large countries with stable banking systems and investments you can trust just don't provide the refuge any longer.

These centers you list are not places you can trust. If they will aid and abet your cheating on your taxes and laundering money, can you trust them? I'd say no. More countries will find it advantageous to come clean as time passes, with the result that there will be fewer and fewer havens, and all of them very dicey.

Visduh: Yes, Switzerland was THE major tax and secrecy haven for many decades. However, because of pressure from other nations and its own citizens, it has loosened up somewhat. In stepped smaller nations, such as Caribbean island countries. Competition from the Cayman Islands (the world's fifth biggest money center) and all the other remote nations -- both in the Caribbean and elsewhere -- took some of the power away from Switzerland.

A couple of decades ago, many nations joined together to thwart tax and secrecy havens. The U.S. was one of the holdouts. Among other things, then-Texas Senator Phil Gramm wailed that banks would have to go to too much trouble to stop money laundering. That's when places like the Cook Islands -- so far away that countries couldn't afford to send investigators there -- started up with new wrinkles, such as if any crime fighter in a nation such as the U.S. demanded that the money be repatriated, Cook would immediately take your deposit for itself. Some people got stung by that.

I agree that it is fatuous to trust your money to some of the smaller havens. Only you and your trustee on the island know about your stash. You may get double-crossed and lose what you have there.

The biggest offshore stasher these days are blue chip American corporations. Their main objective is to dodge U.S. taxes and regulation. Do we see the IRS going after these countries? We do not. It tells you something, doesn't it? Best, Don Bauder

Even the $32 trillion figure might be a little low. Staggering as the extent of corruption revealed was, the Panama Papers only covered the dealings of one of the top five shell gamers in the world. That's just the tip of a very big and very dirty iceberg.

Cassander: You may be right. I was conservative using $32 trillion. There are extremely wide variations in estimates of wealth stashed offshore, particularly now that large corporations are stashing billions in the havens. Best, Don Bauder

Don and Cassander: What Panama Papers? Did somebody report something? Top 5 who?

shirleyberan: Much has been written about the Panama Papers. I am not aware of any new findings from them. Best, Don Bauder

shirleyberan: In re-reading your post, I suspect you may have missed the Panama Papers scandal. A bundle of private papers from a Panama law firm specializing in offshore monkey business was covertly released. Investigative reporters went over the papers for a year, then released them last year. As I recall, I didn't find anybody from San Diego involved in the papers. The name Manchester came up a number of times, but Manchester's people claimed they had nothing to do with the law firm or the Panama Papers. Best, Don Bauder

I've been researching email and website providers who don't report all your traffic to the US and affiliated governments. Switzerland came up as a relatively secure place to do business. But the companies I found there refuse to guarantee privacy explicitly, while suggesting that privacy is important to them. The next most likely safe place for an online presence is India.

Several governments have agreed to share with each other any data they uncover, including USA, UK, Germany, France and some others. Whether they share information uncovered from bankers is uncertain. One might think that it is in their interest, but powerful, very powerful financial interests might discourage such an investigation. I leave it to you to discover who those powerful financial interests are.

omphaloskepsis often

swell: Switzerland is betwixt and between. For decades, the "gnomes of Zurich" were the safe place for crooks to stash money. They also safeguarded clean money, such as that of people getting money out of Hitler's Germany. Now, under pressure, the Swiss have loosened up quite a bit. The Swiss even cooperate with foreign governments chasing crooks.

I have written several times about the Cosmos Bank, an all-Mafia institution that was based in Switzerland, but its legal team was in New York -- a giveaway. The bank played a major role in San Diego -- in the original La Costa loans, in the building of Rancho Penasquitos and parts of Clairemont, in financing the corrupt U.S. Financial whose key officials went to prison, etc. (At one time the Teamsters' notorious money fount was said to control 25 percent of San Diego County developable land.) But far back in the 1970s, the bank was closed by joint cooperation of the U.S. and Switzerland. So the Swiss have had a conscience longer than we realize. Best, Don Bauder

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