What ICIJ's Offshore Investigation Can Teach the IRS
April 11th, 2013
Sarah Petre-Mears controls more than 1,200 companies across the Caribbean, Ireland, New Zealand, and the United Kingdom. Supposedly. Actually Petre-Mears doesn’t know much about the companies for which she passes resolutions and helps set up bank accounts; all she needs to do is sign her name. Because Petre-Mears is actually just a nominee-director, who keep the real owners of her companies secret by selling their names for use on official company documents, whilst giving addresses in obscure places all over the world.
Walk into Madrid’s famed art museum, Thyssen-Bornemiza, and you’ll find the private art collection of Carmen Thyssen-Bornemisza, which includes Monets, Matisses, and Van Goughs. But technically Thyssen-Bornemisza doesn’t own the paintings you see in the museum named for her family. Instead they are owned by secrecy-guarded companies in Liechtenstein, the Cayman Islands, the British Virgin Islands, and the Cook Islands. Not only does this ownership structure give Thyssen-Bornemisza some tax benefits, but it also allows her some flexibility to move the paintings across borders. She’s not the only one; many other of the world’s biggest art collectors use tax havens to buy and sell art.
We wouldn’t know about the antics of Sarah Petre-Mears and Carmen Thyssen-Bornemisza if it weren’t for an investigation by the International Consortium of Investigative Journalists (ICIJ). After a three year investigation into Australia’s Firepower scandal, a case involving offshore abuse and corporate fraud, Gerald Ryle, ICIJ’s Director, obtained a hard drive with a trove of corporate data, personal information, and e-mails on offshore companies and trusts.
The hard drive held about 2.5 million files, including 2 million e-mails, that track the offshore industry over years. The data cover 10 offshore jurisdictions—including the British Virgin Islands, the Cook Islands and Singapore—they include details on 122,000 offshore companies or trusts, nearly 12,000 intermediaries, and 130,000 records on the people and agents who are behind these companies, either secretly or otherwise. Armed with these data, 86 investigative journalists from 46 countries mined the information for stories like those about Petre-Mears and Thyssen-Bornemisza, in what is now the largest cross-border investigative collaboration in journalism history.
Some governments have already begun to take action as a result of the report. For example, German newspaper Der Spiegel recently announced the country’s Financial Supervisory Authority (BaFin) will investigate Deutsche Bank to see if the bank is systematically violating or helping people violate tax law. Similarly, the U.S. Internal Revenue Service will likely investigate any U.S. citizens and companies named in the ICIJ report. However, while ICIJ has already published a great deal of pretty specific information using the data, we can safely bet there is much, much more in there. As a result, you might not be surprised to learn that governments around the world—including Germany and the United States, but also Greece, South Korea, and Canada—have asked to take a peek inside.
ICIJ’s response? No. Gerald Ryle commented in a blog post: “We are declining to do so. The ICIJ is not an arm of law enforcement and is not an agent of the government. We are an independent reporting organization.”
I would tend to agree with Ryle, not because I don’t think the world’s governments should have access to the data, but rather because I think they should collect much of this information in the first place. They should not have to resort to a leak to obtain it.
In fact, many of the Task Force’s own proposals would solve this problem. For example, suppose jurisdictions maintained a current and publicly available list of the beneficial owners and controllers of corporations and other legal structures; and the FATF requirements for establishing beneficial ownership as part of the customer due diligence process were rigorously implemented globally. What if, also, multi-national corporations reported sales, profits, and taxes paid in all jurisdictions in their audited annual reports and tax returns. And finally imagine that governments collected data on income, gains, and property paid to non-resident individuals, corporations, and trusts from financial institutions and then provided those data to the governments where the non-resident entity is located.
If the world existed like this, we might still have investigations into offshore entities, but we wouldn’t need a whistleblower and ICIJ wouldn’t need to turn any data over to the United States, Germany, Greece, Canada, or India, either. Not only would these proposals retroactively punish those who break the law, but it would also proactively prevent much of the bad behavior in the first place. In the end, being proactive, rather than reactive, will be the answer.
