Two decades ago, few had any idea that the U.S. — thanks to both rigged tax structures and anonymous companies in states like Wyoming and Nevada — had already transformed into one of the world’s greatest tax and secrecy havens. While jurisdictions like the Cayman Islands and Switzerland grabbed headlines, the U.S. presented itself as the future of offshoring writ large. There’s a reason, after all, that the U.S. (and Delaware) led the Tax Justice Network’s inaugural “Financial Secrecy Index” a decade ago.
Now, thanks, to pushback from civil society groups, increased interest from academics, and bombshell revelations contained in document dumps like the Panama Papers and Paradise Papers — to say nothing of the current president’s finances — the past few years have featured a new and burgeoning awareness of the U.S.’s role as a global offshore mecca, as well as renewed policy efforts to end the U.S.’s role as secrecy haven. Former Trump campaign manager Paul Manafort, now a convicted felon, has shown just how integral financial secrecy mechanisms in the U.S. remain — and lawmakers have taken note.
As such, the Trump administration has coincided with one of the greatest pushes for unwinding the U.S.’s role as an offshoring center. Thanks to things like Robert Mueller’s investigation — which has led directly to a massive spike in Foreign Agents Registration Act (FARA) filings — and states like Delaware coming out in favor of a registry identifying the beneficial owners of all companies formed across the country, there’s been an unprecedented campaign in the U.S. for more transparency and greater scrutiny over the types of offshoring tools beloved by kleptocrats and criminals alike.
This new energy behind this financial rectitude — combined with existing mechanisms like the Treasury Department’s Geographic Targeting Orders (GTOs), which have shone a light on the previously anonymous luxury real estate buyers in places like Miami and New York — can make it feel as if the worst days of offshoring in the U.S. may finally be behind us.
But the momentum, however welcome, has been undercut in other areas. The IRS, for instance, has seen a significant drop-off in pursuing cases of tax fraud. That slow-down has been matched by the Treasury Department’s Office of Foreign Assets Control, which has likewise seen a decline in sanctions enforcement.
ThinkProgress spoke with renowned offshore finance investigator Jack Blum about all of the recent developments on the offshoring and anti-kleptocracy front. Blum’s work has spanned decades, from serving as an attorney on the Senate Foreign Relations Committee to helping push the passage of the U.S.’s Foreign Corrupt Practices Act. One of the U.S.’s foremost experts on offshoring mechanisms, Blum shared his thoughts on everything from Trump and Manafort to the international crooks and criminals still looking to stash their loot in the U.S. — and where the U.S. may be going from here.
Given that we’re now nearly 20 months into the Trump administration, can you give us an overview of how you see developments related to offshore finance in the U.S.? Have things gotten worse? Stayed about the same?
I think the thing to say is it’s a mixed bag — but trending toward things getting worse. Let me say first why things have gotten worse. The capacity of the IRS to do anything has been absolutely decimated. The budget cuts, the retirement of people who are experienced, and a variety of other factors — including the will to go after people who have questionable tax records — all indicate that the administration really isn’t that interested in collecting tax. And this is a massive problem.
I think the thing to say is it’s a mixed bag — but trending toward things getting worse.
And the other part of that story is that it’s not only a lack of funding, but the fact that most of the people who were at the forefront of going after international tax evasion have now retired, and there’s a real deficit in human resources at the IRS. And the question of how they will replace those people, and how whoever replaces them will be trained, is also a major problem. The knowledge of mechanics, what do you do, how does it work and all the rest — incoming new hires will have to be taught everything from the bottom up.
Let’s talk about anonymous shell companies and things like beneficial ownership registries. This new pro-transparency push seems like one of the most positive developments in the U.S. over the past year — we even saw the Delaware Secretary of State come out in favor on some kind of beneficial ownership registry. There actually seems like there’s finally momentum on this front. What’s your impression?
There’s been real progress in terms of people recognizing the problem of anonymous corporations, and one by one — including Delaware — [states are] under pressure from law enforcement to move toward some solution to the problem. How quickly that will happen, I can’t say. The difficulty will be in the details. Who will have access to [a beneficial ownership] registry? Who will make sure that the elements of the registry are honored? And how do we make sure you don’t have a problem of having a U.S. shell company owned by a foreign shell company? You have to be very sure that just adding a couple [of shell company] layers to whatever scheme you have to hide your money isn’t going to be successful.
We’re still in the stage of, “Oh my god, what are we going to do with all of this?”
Now, I don’t want to minimize the steps taken in right direction … and the registry itself would be a step forward, but to be useful the registry has to not only be accessible but has to be used by the people who are enforcing the law. So it’s one thing to say, “Yes, we have this registry in Delaware that you can use if you’ve got the time and the energy.” But it’s another thing to say, “This is all out there and all it will take is a few clicks of a button on a computer to figure this out.” … You can have all the agreements in the world, but if they’re not used or are not accessible, or the people enforcing the law in any given country aren’t on top of things, then it doesn’t matter.
Speaking of enforcement, we’ve seen that the enforcement the GTOs — in places like Miami, New York, San Antonio — have definitely had a measurable effect on anonymous luxury real estate purchases. We’ve already seen chatter about potentially expanding those regulations nationwide. Are you hopeful about that?
I think the program is essential to changing the perception of the U.S. as a major tax haven, or a place to put hot money. We know that real estate prices in the markets targeted, especially for super-luxury properties, soared as a result of people from abroad buying into the U.S. real estate to essentially move their money out of countries that have currency restrictions, or money that turns out to have been the proceeds of some sort of criminal activity. [The GTOs have] really zeroed in on those markets, and it’s interesting to me that the very high end of these markets has now gotten into a bit of trouble — they’re having trouble unloading some of the very expensive properties. So that is something that should move forward, and there’s no question that it’s a very important step.
Now, again, we come back to the problem of, how will it be used? And this takes us to … the problem of personnel and enforcement and the will to proceed. So it’s two steps — one step is to get the information, but the second step really is using the information. And there, I think we’re still in the stage of, “Oh my god, what are we going to do with all of this?”
There seems like there’s at least been an uptick in public awareness of these issues. Obviously much of that has to do with the investigations into Trump’s 2016 campaign. Do you think the Manafort trial has changed anything? Or that it could potentially change things moving forward?
The most important aspect of the Manafort case from my perspective is the message it sends to that cadre of Washington law firms and lobbying shops that they simply can’t duck their responsibilities for reporting under FARA. You can see that Manafort acted as a cut-out to hide the relationship between [the former] Ukrainian government and these Washington-based firms. And the degree to which this stuff has gone on over a period of years is absolutely remarkable. And the failure to enforce FARA has been stunning.
The degree to which this stuff has gone on over a period of years is absolutely remarkable. And the failure to enforce FARA has been stunning.
But now, with an exemplary prosecution of Manafort and the people underneath Manafort whom he hired, that will cause a change — a big change. Because the big law firms that fed on this don’t want to have their reputations wrecked for a single bad client, no matter how much they pay.
Broadening things out, we see these pro-transparency policies floated in the U.S., and we’ve also seen a greater push in the U.K. for its overseas territories — even in places like the Cayman Islands — to have shell company ownership transparency. Have we turned some kind of a anti-offshore corner? Is this all smoke and mirrors? Or something else entirely?
Here’s some of the very good news. First, over the last couple years, because of the disclosures in the Panama Papers and the Paradise Papers, the people who would hide money [offshore] are scared witless. It’s clear that however the secrecy set-up has been done, if there’s a breach because of the activities or because the files of the law firm or the bank have become public, they’re up a creek — no matter how good the effort to hide the money is.
So people who are wealthy and who are hiding money from the tax collector have to be having second thoughts about, “Is this a good idea, and what are my chances of getting caught?” And suddenly because of all of that the chances have gone up significantly. So I’d say that that has pushed everything in the correct direction.
The people who would hide their money offshore are scared witless.
Now, the issue of the use of tax havens for various and sundry business tax transactions is another matter altogether, and there the corporations are very careful to have the color of legality over whatever they do. There’s been marginal improvement in the law, but there’s a very long way to go. Because as soon as you correct one set of problems, my colleagues at the Bar will be working overtime to give you another set of problems. … Given the experience I’ve had over a period of years, [that’s] the way this this whole thing works.
But if you go back to the early 1990s, nobody even understood that there was much of an offshore world, or that there was a significant amount of money being hidden in that world. I dare say now the popular culture has made it clear not only that there is such a world, but that every kind of crook, criminal, hustler, and tax evader uses it. Everybody knows about it. So that’s meant that it has come a long way — and then periodically people are getting caught. There’s progress, but it’s one step forward, two steps back, two steps forward, one step back. It’s slow, and it just is the way problems like this ultimately get resolved.
This interview has been edited and condensed for clarity.