Washington, D.C. - On Tuesday, U.S. President Barack Obama disingenuously called for international tax reform in the wake of the massive leak of millions of documents from Panamanian-based law firm Mossack Fonseca.
“There is no doubt that the problem of global tax avoidance generally is a huge problem,” Obama told reporters at the White House on Tuesday. “The problem is that a lot of this stuff is legal, not illegal.”
In what amounted to a complete dog and pony show, meant to appease the masses, Obama said the Panama Papers illustrated the immense scale of tax avoidance by Fortune 500 companies, which is estimated at trillions of dollars worldwide.
“We shouldn’t make it legal to engage in transactions just to avoid taxes,” he added, hollowly praising instead “the basic principle of making sure everyone pays their fair share.”
He made clear that the information contained in the leak was “important stuff,” noting the weight of his administration’s new rules to close corporate inversions, by which companies move their headquarters overseas to avoid taxes.
But more importantly, it’s what President Obama didn’t mention that is actually worth noting.
According to a report by Bloomberg:
For decades, Switzerland has been the global capital of secret bank accounts. That may be changing. In 2007, UBS Group AG banker Bradley Birkenfeld blew the whistle on his firm helping U.S. clients evade taxes with undeclared accounts offshore. Swiss banks eventually paid a price. More than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay about $5 billion to the U.S. in penalties and fines…
The U.S. was determined to put an end to such practices. That led to a 2010 law, the Foreign Account Tax Compliance Act, or FATCA, that requires financial firms to disclose foreign accounts held by U.S. citizens and report them to the IRS or face steep penalties.
Inspired by FATCA, the OECD drew up even stiffer standards to help other countries ferret out tax dodgers. Since 2014, 97 jurisdictions have agreed to impose new disclosure requirements for bank accounts, trusts, and some other investments held by international customers. Of the nations the OECD asked to sign on, only a handful have declined: Bahrain, Nauru, Vanuatu—and the United States.
Since that time, the U.S. has quickly become known as the new Switzerland of international banking, due to its refusal to sign on to the global disclosure standards issued by the Organization for Economic Co-operation and Development (OECD), a government-funded international policy group.
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The process of moving massive amounts of international capital from typical tax havens and into the U.S. is being driven by a familiar name in the world of international finance – Rothschild & Co.
Driving the phenomena of international capital flow into the U.S. is its refusal to agree to the new international disclosure standards that it essentially wrote. After coercing almost 100 countries to sign on to the OECD disclosure standards, the U.S. now refuses to become a signatory – Panama also refused to sign.
After opening a trust company in Reno, Nev., Rothschild & Co. began ushering in the massive fortunes of the world’s most wealthy individuals out of typical tax havens, now subject to OECD international disclosure requirements, and into the Rothschild run U.S. trusts, which are exempt from the international reporting requirements.
The impetus for the wealthy to put their money into the U.S. trusts is the promise of confidentiality, which in itself is interesting – considering the U.S. basically created the disclosure requirements.
“How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Peter A. Cotorceanu, a lawyer at Anaford AG, a Zurich law firm, in a recent legal journal. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”
In an odd twist of fate, the U.S. Treasury Department takes a very strong stand against international tax evasion, as noted by Obama – unless you put that money into an ‘offshore’ U.S. trust account.
The words of Andrew Penney, managing director of Rothschild & Co., were extremely clear to international investors, as noted in a written draft for a presentation in San Francisco in which he wrote that the U.S. “is effectively the biggest tax haven in the world.”
Penney, 56, is now a managing director based in London for Rothschild Wealth Management & Trust, which handles about $23 billion for 7,000 clients from offices including Milan, Zurich, and Hong Kong, according to Bloomberg Business. A few years ago he was voted “Trustee of the Year” by an elite group of U.K. wealth advisers.
Totally contrary to the public statements by Obama, the U.S. has now become one of the only countries in the world where financial advisors actually promote that U.S.-based trust accounts will remain secret from international authorities.