Unintended Consequences

Some basketball fans may remember the 1988 Summer Olympics in Seoul when, for the first time since the earth cooled, Team USA did not bring home a basketball gold medal. But NBA Commissioner David Stern had a plan: assemble a roster stocked with future Hall of Famers and allow them to run roughshod over any backwater country that dared show up for the opening tip.

The plan worked so well that Mr. Stern soon had visions of absorbing what were considered to be inferior European basketball teams into the NBA, because in the world view of many, the only people on the planet are Americans and those who want to be Americans.

But there were some unintended consequences. Players in the United States began seeing images of mid-sized arenas in places like Barcelona and Rome that were filled with screaming fans. A cursory Google search revealed that European teams have no salary cap, a factoid which piqued their interest even further. Very soon, veteran players began to head overseas, as opposed to playing out the string on an NBA bench.

Such jingoism is also evident in tax law. Before the federal government began putting the screws on foreign banks to catch alleged tax cheats, most lawmakers probably assumed that the only rich people in Europe and Asia were Americans. That may have been true fifty years ago, when many of these countries were still recovering from World War II. But, for those who may not have noticed, the world has changed a lot since 1960, and people everywhere have money to hide.

Tax Shelters in The Land of the Free

Earlier this year, just across the street from Peg’s Glorified Ham n’ Eggs, international wealth management firm The Rothschild Group opened a trust company in Reno, Nevada, and it wasn’t for the scenic views of the parking lots on the next block.

The United States never bothered signing onto the Organization for Economic Co-Operation and Development, even though it twisted many arms to compel signatures. No OECD means no disclosure requirement. So, it is highly ironic that TRG is on the 12th floor and the U.S. Attorney’s Office is on the 6th floor.

Trident Trust Company made a similar move, opening a location in Sioux Falls, South Dakota with a primo view of the majestic Big Sioux River and a Country Inn and Suites. All the movement led one banking executive to remark that the “‘giant sucking sound’ you hear. . .is the sound of money rushing to the USA.” TRG’s Andrew Penny echoed that sentiment by calling the United States “effectively the biggest tax haven in the world.”

Many advisers defend the need for bank secrecy, citing situations like extortion and kidnapping schemes. Moreover, many investors are eager to park their money in the U.S., given recent financial and political instability in Europe and elsewhere, along with widespread corruption in some African and Asian countries. And, for the most part, these things are probably true. After all, most Americans who hold foreign accounts are attracted to the secrecy and not by the possibility of going to prison for nonpayment of taxes.

Make no mistake about it: there are still places in the world where bank secrecy is available, either under-the-table or because the nation is an OECD holdout. But the United States is one of the only places on the planet where bankers lure foreign money with promises of hush-hush transactions that are 100 percent legal.

What’s Next

The U.S. Treasury’s attempts to impose disclosure rules on domestic accounts like the ones for overseas banks have, rather predictably, ran into some opposition from both sides of the aisle. Republicans are facing pressure from their banker donors to not place obstacles in front of potentially large depositors, especially as these institutions face competition from not only foreign banks, but also fin-tech startups. For their part, Democrats are wary of anything that smells like a Republican-instigated domestic spying program.

It is already illegal for U.S. banks to help their clients avoid taxes, regardless of their country of origin. Scott Michel, a criminal defense attorney in Washington, D.C., may have made the understatement of the year when he said “the U.S. government would likely take a dim view of any marketing suggesting that evading home country tax is a legal objective.”

Of course, the delightful twist in all this is that after years of listening to American politicians rail against “foreign tax cheats” and decry enabling overseas bank secrecy laws, politicians in China and Germany may soon take the podium and say the same things about America.

Clearly, nothing will happen in an election year. When the calendar turns to 2017, it will be interesting to see how much energy, if any, the government has to be a tax collector for China and Mexico.

As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.

Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.


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