Last March, the Boston Globe reported that KBR — one of the top profiteers of the Iraq war — has avoided paying more than $500 million “in federal Medicare and Social Security taxes by hiring its workers through shell companies” based in the Cayman Islands.
Today, the Globe reports that another Pentagon contractor, Virginia-based MPRI, has also established offshore havens that have the appearance of avoiding payment of millions of dollars in Medicare and Social Security taxes and also evading scrutiny from the IRS:
In March 2005, one of the Pentagon’s most trusted contractors — Virginia-based MPRI, founded by retired senior military leaders — won a $400 million contract to train police in Iraq and other hotspots. Two months later, MPRI set up a company in Bermuda to which it subcontracted much of the work. […]
A year earlier, MPRI headed a joint venture that won a $1.6 billion contract to provide US peacekeeping forces in Kosovo and elsewhere. Three months later, MPRI set up a company in the Cayman Islands to do the work.
But tax lawyers say that MPRI appears to be avoiding the payment of roughly $4 million dollars a year in Social Security and Medicare taxes for the police-training contract alone and is sidestepping scrutiny by hiring workers through offshore entities based outside the jurisdiction of the Internal Revenue Service.
MPRI has hired “roughly” 400 employees through the Bermuda shell company, but the company also avoids taxes by hiring its workers as “independent contractors.” But experts, and even MPRI employees themselves, say their work would unlikely “pass the IRS test for self-employment.”
Georgetown professor Albert Lauber said […] that genuine independent contractors come into a job with their own equipment, require little training and oversight, and generally get the job done on their own schedule.
MPRI’s police trainers, who asked not to be identified, said they do not work that way. One former trainer working for MPRI in Iraq said that police trainers in Baghdad received letters at the end of 2005 saying that they might experience a brief disruption in their payments because “payroll was being moved to Bermuda to satisfy US tax code.”
The letters became a running joke among the trainers. “We said, ‘What do you mean, to avoid tax codes?’” the former trainer recalled.
The Globe notes that as a result of MPRI’s practices, “workers cannot receive unemployment compensation when their jobs end and may be deprived of other protections under US law.”