POLITICS
06/14/2013 10:00 pm ET | Updated Jun 17, 2013

Offshore Tax-Haven Data Made Public As Companies Brace For Scrutiny

WASHINGTON -- The International Consortium of Investigative Journalists (ICIJ) on Friday made public what it calls the most extensive collection of records on offshore accounts in history, encouraging sleuths to ferret out possible tax evasion.

The online portal, called the Offshore Leaks Database, contains hundreds of thousands of records showing corporations set up in so-called "tax-haven" countries, gleaned from the contents of about 2.5 million emails and financial documents that ICIJ said it received in early 2012. Over the past year, the data have been used by journalists around the world to detail alleged tax evasion by billionaires, oligarchs, emirs, princes and multinational corporations on nearly every continent.

Publication of the documents may heighten scrutiny of some of the world's largest financial institutions and their clients. Governments worldwide have renewed efforts to stamp out tax avoidance as fiscal authorities, including those from Europe and the United States, confront record budget deficits and slow-growth economies.

Click here to search the Offshore Leaks Database.

A 2012 report by the Tax Justice Network (TJN) found that untaxed wealth invested in offshore tax havens ran between $28 and $32 trillion, equal to two years’ worth of U.S. economic output. The report estimated that if the money were to have been invested in home countries, even at low rates of return, it could have generated hundreds of billions of dollars per year in tax revenue.

The TJN report also described the secrecy enveloping the world of offshore tax havens as a "subterranean system that … is the economic equivalent of an astrophysical black hole."

The new ICIJ OffShore Leaks Database provides a small window into that world for the public to peruse. The database contains documents covering 30 years from the British Virgin Islands, Cayman Islands, Cook Islands, Singapore, Hong Kong, Samoa, Seychelles, Mauritius, Labuan and Malaysia. According to ICIJ, the information came from a leak of documents from two offshore service companies, Singapore-based Portcullis TrustNet and British Virgin Islands-based Commonwealth Trust Limited (CTL).

The documents have been used to unearth stories, starting in April 2013, about tax evasion by politicians in Canada, France, Malaysia, Mongolia, Pakistan and the Philippines; how offshore companies are used to hide the foreign investors in London's real estate market; the use of tax havens to buy and sell on the fine art market; the involvement of companies like Deutsche Bank to help create offshore entities; arms trading in war zones; and how the world's ultra-rich hide their money from taxation.

In making the database freely available, ICIJ hopes to engage the public in its ongoing work to expose the use of offshore tax havens by international corporations and wealthy individuals. Readers are encouraged to contact journalists if they come across promising leads.

Tax havens are nations that offer favorable tax treatment to assets held within their boundaries, often offering zero or near-zero tax rates with very few questions asked. Bermuda, the British Virgin Islands, Dubai and the micro-state of Jersey, off the coast of England, are just a few of the countries that host corporate entities and trusts created by the world's wealthy and powerful to shield their money from taxes in their home-country.

While the transactions listed in the database likely are legal in countries considered to be tax havens, use of offshore accounts by a corporation or individual often is decried as tax evasion in home countries, regardless of the circumstances.

In some cases, authorities have targeted offshore accounts when accusing banks of facilitating illegal tax evasion.

UBS, Switzerland’s largest bank, in 2009 avoided criminal prosecution by entering into a deferred-prosecution agreement and paying $780 million to settle allegations it defrauded the U.S. government. The bank admitted it participated in a scheme to defraud the federal government by "actively assisting or otherwise facilitating" tax evasion by Americans from 2000 to 2007.

Peter Kurer, then-chairman of UBS, said at the time: "UBS sincerely regrets the compliance failures in its U.S. cross-border business that have been identified by the various government investigations in Switzerland and the U.S., as well as our own internal review. We accept full responsibility for these improper activities."

Thousands of wealthy U.S. customers eventually turned themselves in. The Swiss government also turned over the identities of U.S. account holders to U.S. officials.

In 2010, Deutsche Bank, Germany’s largest lender, agreed to pay $554 million to U.S. authorities to settle criminal accusations that it helped create fraudulent tax shelters for clients from 1996 to 2002 that deprived the U.S. Treasury of revenue. The bank admitted wrongdoing and entered into a non-prosecution agreement.

At the time, the bank said it was “pleased that this investigation, which concerned transactions that ceased more than eight years ago, has come to a resolution.”

“Since 2002, the bank has significantly strengthened its policies and procedures as part of an ongoing effort to ensure strict adherence to the law and the highest standards of ethical conduct,” it added.

In response to growing allegations of evasion, the U.S. in 2010 enacted the Foreign Account Tax Compliance Act (FATCA) to enlist financial institutions in the government’s fight to recoup lost tax revenues.

FATCA forces foreign banks to report information on overseas accounts held by U.S. individuals and businesses, and foreign corporations in which U.S. taxpayers hold a substantial ownership stake.

Other nations are now following suit. The eight leading industrialized nations that comprise the Group of Eight (G8) are due to discuss efforts to combat tax dodging at their coming meeting June 17-18 in Northern Ireland.

“The upcoming G8 summit is poised to deliver a hammer blow to offshore corporate tax avoidance," Sen. Carl Levin (D-Mich.) said.

“The G8 summit should take advantage of the emerging international consensus that we can no longer allow profitable multinational corporations to play one country off another, ducking corporate taxes and leaving other taxpayers to pick up the slack,” he added.

Banks that structure and facilitate offshore corporate entities designed to minimize tax payments may feel the brunt of the pressure.

A review by The Huffington Post of the ICIJ database, which comprises only a portion of the total data trove in the leak, revealed that UBS was linked to more than 3,000 offshore accounts. It allegedly served as a "master client” -- defined by the ICIJ as "an intermediary or go-between who helps a client set up an offshore entity” -- or as a "nominee shareholder," a shareholder who is not the real owner or beneficiary of the corporation.

The bank declined to comment.

The database shows Deutsche Bank linked to more than 1,000 offshore accounts. A spokesman declined to comment.

Though not all of the offshore accounts listed in the database are currently active -- many are listed as defunct or dissolved -- the data covers three decades of offshore accounts, potentially providing tax authorities with a road map to discover tax cheats.

A slew of ICIJ-inspired reporting in April had dramatic effects.

Herbert Stepic, Raiffeisen Bank International chief executive, resigned his post after news reports alleged he had numerous offshore accounts.

A month later, police in South Korea raided the home of business titan Lee Jay-Hyun, CJ Group chairman and a billionaire grandson of Samsung founder Lee Byung-Chul, as part of a tax evasion probe.

The revelations unearthed by ICIJ and journalists around the world also prompted stern responses from a number of European leaders, and in some cases helped lead to calls for changes in laws to promote banking transparency and prevent tax evasion.

In May, British Prime Minister David Cameron said at a White House press conference that “we need to know who really owns a company, who profits from it, whether taxes are paid.”

Algirdas Šemeta, the European commissioner for taxation, said: “Recent developments, fueled by the outcome of the Offshore Leaks, confirms the urgency for more and better action against tax evasion."

Šemeta further called for European nations operating as tax havens, including Luxembourg and Monaco, as well as protectorates controlled by European countries like the British Virgin Islands, to adopt the European Union's standard of banking transparency.

After Šemeta's statements, Luxembourg announced that it would end secret banking for investments by European nationals. Britain's overseas territories also announced that they would begin sharing banking information with the United Kingdom, France, Germany, Italy and Spain.

In Washington, ongoing congressional hearings on American companies' use of offshore tax havens to avoid paying U.S. corporate taxes appeared to reach an apex in May, when Apple CEO Tim Cook testified before Levin’s Senate investigative subcommittee on the company’s aggressive use of strategies allegedly for the sole purpose of minimizing taxes.

“We pay all the taxes we owe, every single dollar. We not only comply with the laws, but we comply with the spirit of the laws,” Cook said.

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