Friday, July 25, 2008

The GAO Exposes a Possible Cayman Islands Sham

It's one thing to hear stories about the tax havens in various parts of the world, such as the Cayman Islands. It's another thing when you find out the Government Accountability Office has been busily compiling the information for Congress. That's a pretty good sign that someone is finally going to close the loopholes.
The Cayman Islands is a major offshore financial center and the registered home of thousands of corporations and financial entities. Financial activity there is in the trillions of dollars annually. One Cayman building--Ugland House--has been the subject of public attention as the listed address of thousands of companies.

GAO was asked to study
(1) the nature and extent of U.S. persons' involvement with Ugland House registered entities and the nature of such business;
(2) the reasons why U.S. persons conduct business in the Cayman Islands;
(3) information available to the U.S. government regarding U.S. persons' Cayman activities; and
(4) the U.S. government's compliance and enforcement efforts.

The facility known as Ugland House is of particular importance to anyone who wants to know what's going on in the Cayman Islands.

Shurna Robbins for The New York Times

This is the hub of what could be a lot of shady dealing. And you also have to acknowledge that much of what they do there is probably perfectly legal as well. Ugland House is where a law firm and a company-services provider named Maples and Calder is housed. The company has a list of 18,857 entities tied to it that draw from a mostly international list of clients. According to a person at that business, about 5 percent of these entities were companies that were owned entirely by US persons but--and this is important to note--some 40 to 50 percent of their clients had a U.S. billing address. Obviously, we need more information on what is going on.
Information about U.S. persons' Cayman activities comes from self-reporting, international agreements, and less formal sharing with the Cayman government. Because there is often no third-party reporting, self-reported information may be vulnerable to being inaccurate or incomplete. U.S. officials said the Cayman government has been responsive to taxpayer-specific information requests. The Internal Revenue Service has several initiatives that target offshore tax evasion, including cases involving Cayman entities, but oversight and enforcement challenges related to offshore financial activity exist. U.S. officials said that cooperation with the Cayman Islands government has been good. Also, Maples partners said that ultimate responsibility for compliance with U.S. tax laws lies with U.S. taxpayers.

That's why I think this is a sham--there's no accountability or oversight and who really thinks there aren't at least a few US individuals who are using the Cayman Islands to hide money that should be taxed? I think the GAO has decided to start exposing this sham, and Congress needs to step in as well.

Here's hoping the GAO can shed a little light onto this tax shelter, and help drive home the fact that these scams are being perpetrated by some heavy hitters. I don't have a whole lot of faith--after all, this isn't the first time the issue has been raised.

Now we just need to find out who the heavy hitters are and what they're doing.


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