Financial Transparency Coalition

By Bill Allison, Sunlight Foundation

When President Barack Obama promised in May to raise an additional $210 billion in taxes a year by closing corporate loopholes and cracking down on individual tax cheats, he pointed to an address in the Cayman Islands listed by 12,000 corporations as the kind of abuse his proposals would shut down. “Either this is the largest building in the world or the largest tax scam in the world,” the President said.

The line, recycled from his stump speech, was one that the Caribbean jurisdiction had responded to many times before. They have defended Ugland House, the building Obama referred to, and argued that the Cayman Islands are well regulated and transparent, to presidential candidates, executive branch officials, members of Congress and their staffs. In a revenue starved Washington, they’re not the only tax haven lobbying.

Ugland House

Disclosures filed in 2008 show that six governments–Aruba, Bermuda, the Cayman Islands, the Isle of Man, Liechtenstein and the States of Jersey–and the Bank of the Netherlands Antilles employed U.S. lobbyists, paying a total of $2.3 million in fees. Those lobbyists had at least 222 contacts with members of Congress, their staff and executive branch officials in which they discussed tax laws, legislation aimed at tax havens like the Stop Tax Haven Abuse bill, or efforts to negotiate tax exchange information agreements with the United States and other countries, a review of data in Foreign Lobbying Influence Tracker (online at www.foreignlobbying.org) shows.

Signing or even committing to sign such agreements earns tax havens a stamp of approval from the Organization of Economic Cooperation and Development, an international body of developed countries that promotes policies that will spur development elsewhere. In 1998, the OECD launched an initiative aimed at shutting down tax havens; by 2001, the effort had fallen apart, and the body turned instead to encouraging havens to agree to exchange information on their offshore clients with foreign governments on request.

Critics charge that these agreements don’t go far enough–while they allow governments to get information on taxpayers who they know have foreign accounts, they don’t allow governments to get lists of all their citizens using foreign accounts. The demand of the U.S. government for just such a list of American clients drove its lawsuit against Swiss bank UBS, which was settled when the firm agreed to provide the requested information.

While the Obama administration has signaled its intent to go after offshore shelters, four other jurisdictions that are considered tax havens–Luxembourg, Malta, Singapore and the dual island nation Antigua and Barbuda–have signed up new Washington lobbyists in 2009 to represent them on tax matters, while Bermuda has added two new firms.

Among the available disclosures for 2009, the busiest firm has been Fleishman-Hillard, which lobbies for the Cayman Islands government’s finance ministry, disclosed 46 contacts with members of Congress and staff, focusing mostly on members of the House Ways and Means Committee.

Ted Bravakis, the public relations director for Cayman Islands Ministry of Financial Services, said that the meetings “are to ensure open lines of communication with U.S. lawmakers,” adding that they don’t lobby lawmakers or the administration on tax laws the U.S. should or shouldn’t adopt.

The jurisdiction does keep a wary eye on its reputation. “It is important to underline the fact that the financial services sector in the Cayman Islands is not built around tax evasion,” he said, stressing its agreements to share information and its early acceptance of OECD standards. “That we’re uncooperative, that’s the premise on which we have taken clear exception to. On those areas where we are mentioned or identified is what we watch.”

And disclosures show that they watched a lot more than just Ugland House, which is the home of a law firm that provides services to corporations it registers and that have little physical presence in the Caymans. As the Foreign Lobbying Influence Tracker shows, they also touted Cayman Islands participation in trade information exchange agreements, its OECD status, and its efforts at transparency.

Fleishman-Hillard also prepped their client for a March 2008 visit from the Government Accountability Office (the findings from that visit are in this report that noted praise for the Caymans’ legal system and “strong culture of compliance” but also noted that the jurisdiction’s bank secrecy created problems for U.S. investigative and enforcement efforts. The report also noted that partners of Maples and Calder said that U.S. taxpayers bear ultimate responsibility for compliance with U.S. tax laws.

Fleishman-Hillard offered advice to the Caymans government on how to respond to a critical letter to the editor in the New York Times by Robert Morgenthau, then the district attorney of the county of New York and introduced government officials to U.S. financial industry trade groups to search for common lobbying interests.

But the disclosures also show that Ugland House kept rearing its head. As early as December 2007, Fleishman-Hillard lobbyists sent information to an aide in Obama’s Senate office about the building and its occupant.

In January 2008, when Obama repeated the line about Ugland House in a presidential campaign forum in Manchester, N.H., Fleishman-Hillard lobbyists forwarded the transcript to their client. Two days later, Mike Huckabee, the former Arkansas governor, also disparaged the Caymans at a Republican presidential event. He said that tax cheats “can hide [income] away in a Cayman Island offshore bank account and pay no tax on it.” Two weeks later, Fleishman-Hillard forwarded all the presidential candidates information on the Caymans.

A filing from 2009, not yet in Foreign Influence Lobbying Tracker, shows that representatives of Fleishman-Hillard approached members of the Obama campaign after a pre-election rally in November, to advise them on “facts concerning Ugland House and Cayman Islands financial services.”

When Obama repeated his stump speech line, he set off a small protest from interests in the Cayman Islands. Anthony Travers, chairman of the Cayman Islands Financial Services Association responded with an open letter, disputing the notion that foreign businesses operating in his jurisdiction are doing anything illegal.

And the Spectator reported that someone from the Caymans had sent out a press release noting that the in Vice President Joe Biden’s home state of Delaware is a building that has, not 12,000 companies, but 217,000 claiming it as an address.

Bravakis said the government hadn’t sent the press release. Whoever did could have found the comparison of Ugland House to the Wilmington, Del., firm in filings made by Fleishman-Hillard.

–Article reproduced courtesy of the Sunlight Foundation / CC BY 3.0