Bailed out Banks and America’s Wealthiest Cheat IRS Out of Billions
A 2008 study done by the Government Accountability Office (GAO) reported that eighty-three of the top publicly held US companies have operations in tax havens like the Cayman Islands, Bermuda, and the Virgin Islands. Fourteen of these companies, including AIG, Bank of America, and Citigroup, received money from the government bailout. The GAO also reported that activities of Union Bank of Switzerland (UBS) are directly connected to tax avoidance.
Swiss banking giant UBS has enabled wealthy Americans to use tax schemes — some of which are illegal — to cheat the IRS out of over $20 billion in recent years, according to the Department of Justice. UBS, a sponsor of the prestigious Miami Art Basel show, takes advantage of this public event to build relationships with the rich by helping them find ways to avoid paying taxes in the US. Art Basel Miami Beach is the most important art show in the United States, a cultural and social highlight for the Americas. Its sister event, Switzerland’s Art Basel, is considered the most prestigious art show worldwide.
UBS uses the show to find clients looking for advice on tax shelters and how to take advantage of bank secrecy rules in Switzerland, Lichtenstein and other places. Other locations for hiding funds include Austria, Luxembourg, the Channel Islands, Singapore, Hong Kong, Andorra, Monaco, and Gibraltar. In the Caribbean, the established havens are the Bahamas, Bermuda, and the Cayman Islands. Some of the newer countries with bank secrecy are the Cook Islands, Turks, and Calicos.
For corporations the process of geographic tax avoidance is fairly simple. A US corporation will sell at reduced rates, even a loss to their own offshore subsidiaries, and then resell the products at higher prices, paying little or no taxes in the foreign country.
In December 2008, the bank holding company Goldman Sachs reported its first quarterly loss. On the heels of this announcement, Goldman Sachs issued a statement confirming that its tax rate was dropping from 34.1 percent to 1 percent.
Goldman Sachs Group Inc., which got $10 billion and debt guarantees from the US government in October 2008, expects to pay only $14 million in taxes worldwide for 2008, compared with $6 billion in 2007. The New York-based Goldman Sachs cited “changes in geographic earnings mix” as the reason behind the decrease.
According to US Representative Lloyd Doggett, the shifting of income to countries with lower taxes is cause for concern. “The problem is larger than Goldman Sachs,” Doggett said, “With the right hand out begging for bailout money, the left is hiding it offshore.”
On February 19, 2009, UBS for the first time agreed to release to the US Department of Justice (DOJ) an as yet undetermined number of the names of bank account holders. Anywhere from just 250 to 19,000 of US taxpayers with Swiss bank accounts face the prospect of IRS examination of their bank documents with an eye to prosecution and/or civil litigation of the account holders. The DOJ has demanded UBS bank account documents for a total of 52,000 additional depositors.
UBS and Swiss banking authorities are claiming that their guarantee of absolute banking privacy will somehow survive this attack—“Banking secrecy remains intact,” declared Hans-Rudolf Merz, Switzerland’s president and its finance minister.
There is, however, much more money escaping taxation through entirely legal means—through provisions in the US tax code—and there is an accurate accounting of the revenues that are lost. Every year, the Congressional Joint Committee on Taxation puts out an illuminating but little-read document with the bestselling title “Estimates of Federal Tax Expenditures,” subtitled this year, “For Fiscal Years 2008-2012.”
1. “International Taxation: Large US Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions,” GAO US Government Accountability Office, December 18, 2008,
Update from Rachel Keeler
From Dollars & Sense, May-June 2009 Issue
Over the years, trillions of dollars in both corporate profits and personal wealth have migrated offshore in search of rock bottom tax rates and the comfort of no questions asked. This was a significant contributing factor to international economic downturn in 2008. The G20 meetings in April of 2009 declared a crackdown on tax havens as the first step to financial recovery. However, the offshore banking world now harbors $11.5 trillion in individual wealth alone, and many countries will continue to resist regulation and inspections from outside their borders.
Bloomberg, December 16, 2008
Title: “Goldman Sachs’s Tax Rate Drops to 1% or $14 Million”
Author: Christine Harper
The Huffington Post, February 23, 2009
Title “Gimme Shelter: Tax Evasion and the Obama Administration”
Author: Thomas B. Edsall
Student Researcher: Valerie Janssen and Aimee Drew
Faculty Evaluators: BC Franson, JD, SMSU and Robert Girling, PhD, SSU,
Southwest Minnesota State University and Sonoma State University
Project Censored Story #8 for 2010 From Project Censored. See the full list of Top 25 Censored Stories for 2010
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