Does President Obama have wealth stashed away in one of the world's most secretive tax havens?
By Scott Sumner
The US reminds me on one of those mafia kingpins, who force other drug dealers out of a neighborhood, so that it can monopolize the business. For years, the US has been the leader in trying to close down tax havens. We’ve strong-armed other countries into providing us with information from secret bank accounts. And now the long campaign is paying off, as the US reigns supreme as the world’s most effective and secretive tax haven.
Much ink has been spilled in recent days about the Panama Papers and the perfidy of foreign leaders from Vladimir Putin to the (now-resigned) prime minister of Iceland. But almost nothing has been written about how we have arrived in this surreal place where the United States, which once was the first mover for greater transparency in financial transactions, has now become the biggest obstacle to making that happen.
Because it is not Panama or the British Virgin Islands or Switzerland that is now the best place in the world to hide assets. It is the United States. And it’s not so much that the United States has all of a sudden become a good place to hide assets–it’s been that way all along. What’s changed is that other traditionally secretive jurisdictions like Panama have become more transparent, and what rankles many of the leaders in these once-secretive countries is that they opened up under enormous pressure from, guess who, the United States.
. . .
Even now, traditional secrecy jurisdictions are not all sweetness and light. But they’re a heck of a lot sweeter and much lighter than before–except for the United States and a handful of tiny countries (Bahrain, Nauru, and Vanuatu). Heck, even Panama, which has recently backtracked on its pledge to be more transparent globally, has signed on to a transparency law that the United States pushed for, the Foreign Account Tax Compliance Act. But that law, passed in 2010, is for the United States’ benefit–it requires foreign banks to disclose American taxpayers holding offshore accounts and structures.
U.S. banks, however, are not doing the same kind of disclosure for their foreign clients, and that’s the problem.
Here’s The Economist:
America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money. The Tax Justice Network, a lobby group, calls the United States one of the world’s top three “secrecy jurisdictions”, behind Switzerland and Hong Kong. All this adds up to “another example of how the US has elevated exceptionalism to a constitutional principle,” says Richard Hay of Stikeman Elliott, a law firm. “Europe has been outfoxed.”
The Financial Times suggests that one solution might be sanctions imposed on the US:
Though the OECD scheme is modelled on Fatca, the US will not participate directly. Instead, it promises to share data with other countries through bilateral agreements related to Fatca. However, US Congress has not approved the reciprocal promise contained in these agreements — and this means the US will in practice end up providing very little information to others. America is fast becoming a tax haven of choice. The OECD knows this but has not been brave enough to call for action.
The only other body with the clout to confront Washington is the EU. It should summon the courage to impose a withholding tax on payments originating in the union to non-compliant jurisdictions such as the US, copying Fatca’s big stick. That would unblock arguably the most powerful guardian of financial secrecy in the system.
Perhaps the EU could also block US exports. If Boeing was not able to sell jets to European airlines, they might put pressure on the US government to follow the same rules that it forces other countries to follow.
Tyler Cowen has an excellent post on the Panama Papers. In fact, the hypocrisy runs far deeper than even Tyler imagines. People who have money invested in American banks are just as sleazy as those who invested in Panama. (I hope my sarcasm is clear, by “just as sleazy” I mean not necessarily sleazy at all.) I wouldn’t be at all surprised to find out that even President Obama has some money invested in one of the world’s last remaining tax havens. Now we just need to find out which one, is it Bahrain, Nauru, Vanuatu, or perhaps the United States?