Even President Obama allowed his less than impressive Secretary of the Treasury to make some noise against tax havens.

The orchestrated battle of words hurled at offshore financial centers got so heated that British PM Gordon Brown felt obliged to demand for “the end of tax havens.”

This belated anti-tax haven baloney comes from Her Majesty’s first minister whose government is in charge (and has been for a decade) of the United Kingdom’s many tax havens in its overseas territories (Bermuda, the Cayman Islands, British Virgin Islands, the Turks & Caicos) and its Crown Dependencies (the Channel Islands of Jersey and Guernsey and the Isle of Man), plus Gibraltar.

Does the Rt. Hon. Gordon believe that the City of London really can absorb all the dispossessed refugee bankers and trust officer that will flood in from these British world-class financial centers if he and the G-20 high tax goons shut them down? (Some unprincipled candidates, desperate for re-election, will do just about anything for votes!)

Spend vs. Regulate

The proponents claimed the G-20 meeting was not only going to solve the international economic crisis, (either by more Obama stimulus spending, or forced global regulation), but for desert, the G-20 would serve the collective severed heads of all tax havens displayed on a platter.

This entire hypocritical anti-tax haven campaign, as I have oft noted, is but an extension of the phony blacklists that have streamed for years from the tax-exempt minions at the Paris headquarters of the Organization for Economic Cooperation and Development (OECD), a taxpayer financed, pro-tax mouthpiece for the G-20 major nations who pay their salaries.

The OECD invented the blacklist and has used it skillfully as a public relations ploy to smear tax havens.

But in a classic case of removing the wind from the sails, the OECD blacklist ploy deflated when Switzerland, Austria, Luxembourg, Belgium, Hong Kong, Singapore, Liechtenstein, Andorra and Monaco, among others, all announced their agreement to broader but limited tax information exchange.

Even German foreign minister Steinbrueck, one of the most caustic anti-tax haven critics, has said he does not think G-20 leaders would come up with a blacklist of tax havens now. “As far as I see, there will be no such list at the London meeting,” he said.

Despicable Communiqué

When I asked one the leading American tax experts, Dan Mitchell (left) of the Cato Institute, what he thought the G-20 outcome might be he said,: “To be honest, I’m not sure what to expect from the G-20 meeting, other than a despicable communiqué attacking tax competition. My guess is that the real enemy is still the OECD, and the G-20 is just engaging in public relations warfare.”

As The Telegraph’s James Kirkup writes,: “The transatlantic disagreement over stimulus vs. regulation isn’t a full-blown row yet, but it’s not far off, and the still-skeletal Obama administration has enough worries at home without looking for more abroad. Better for the president to play safe and sign something anodyne in London.”

List Grows Long

The Swiss daily Tages Anzeiger reported that in a letter dated March 5 to British Chancellor Alistair Darling, OECD chief Angel Gurria provided an anti-tax haven blacklist including Switzerland and Singapore, as well as territories such as the Cayman Islands, Andorra and Montserrat.

The OECD branded 46 countries and territories for “insufficient progress” in meeting standards on tax cooperation and banking secrecy. (To the OECD that means an end to all financial privacy and automatic exchange of tax information among nations, as well as uniform higher taxes in all jurisdictions).

The OECD list also included Costa Rica, Chile, Grenada, Guatemala, Hong Kong, Liberia, Panama, the Philippines, San Marino and Uruguay, as well as Gibraltar, Guernsey and Jersey and a host of Pacific and Caribbean islands.

How Many Legions?

But as the brutal Soviet dictator, Josef Stalin was reportedly to have said about the influence of his enemy, His Holiness, the Pope,: “How many legions does the Pope have?”

The Pope was said to have responded through Stalin’s Foreign Minister, Molotov,: “Tell your master he will meet my legions in Eternity.”

Well, the OECD is loud and demanding, but it has neither any enforcement legions norand certainly not any heavenly allies.

The Tax Haven Test

So remember that on April 2nd, if tax havens and offshore finance are anything more than a minor part of the “global new deal” struck in London, then the G-20 global economic meeting will have failed.

And no matter what the G-20 does, tax havens will still be with us, fortunately.

Source: How to Gauge the Coming Failure of the London G-20 Meeting

Is most offshore activity illegal?  Hardly.

According to the World Bank, more than half of the world’s personal wealth – over $50 trillion – is stashed in about 60 or so asset and tax havens worldwide.

More than a third of it is in Switzerland.  The rest is stashed away in Hong Kong, the Cayman Islands, Panama, Bermuda, the Isle of Man and other protected havens.

What do all these rich people know that you don’t?

Plenty. But their secrets are finally revealed in a fascinating new book by Erika Nolen and Shannon Crouch of The Sovereign Society. It’s called “Offshore Investments That Safeguard Your Cash: Learn How Savvy Investors Grow and Protect Their Wealth.”

Reasons for Offshore Investing

What legitimate reasons could you have for going offshore with your investments?  Let me count the ways:

1. Are you worried about potential claims against your assets?
2. Are you having troubles with difficult business associates, angry ex-spouses or greedy children?
3. Does the lack of privacy in your personal financial affairs bother you?
4. Are you interested in gaining access to the tens of thousands of publicly-traded securities that are unavailable in the U.S.?
5. Are you interested in creating an ironclad estate plan for your loved ones?
6. Do you want greater asset protection than an American safety-deposit box offers?
7. Are you worried you may not have enough money for retirement?

If you answered yes to any one of these questions – and especially if you answered yes more than once – you should read this book, if only to understand your options.

Let’s say, for example, that you are a physician, businessman or comfortable retiree (or that you will be one day).  In our litigious society, someone can trip over their own feet on your property and have an ambulance chaser on the line before they even get up off the floor.

Even if the “plaintiff” has no case whatsoever, you can spend tens of thousands of dollars defending yourself and your assets.  Or be forced into a settlement.

But as Nolen and Crouch write, “many U.S. lawyers hesitate or refuse to take cases involving defendants who have their cash and assets secured offshore.  They recognize the difficulties – indeed, the impossibility – of gaining access to those offshore assets.”

Some people, out of a misplaced sense of patriotism, refuse to even consider moving assets offshore.  Yet there is nothing illegal or immoral about moving assets offshore.  And there are many, many benefits.

Offshore bank and brokerage accounts offer you a wider selection of investments (especially in stronger currencies than our perpetually weak dollar).  Estate planning is often smarter and more efficient than what your local lawyer can set up.  Business regulations are less cumbersome.  You may even want to consider the advantages of dual citizenship and a second passport.

Sound too good to be true?  It isn’t.

“There are no -we repeat, no – outright and explicit prohibitions against American, British or Canadian nationals engaging in a slew of offshore financial activity.  It is legal and legitimate to invest offshore,” write Nolan and Crouch.  “This book tells you how to obey U.S. tax law and file all the required reports, but ensure that a substantial portion of your assets and investments are located in the place where the best profits are – offshore.”

In the end, only you know whether offshore investing is right for you.  But you can’t be sure until you have all the facts.

Nolan and Crouch’s new book is a great place to start.

Source: Offshore Investing: Smart Ways to Keep Your Money Safe

Ordinarily a nutty proposal such as Johnston’s could be laughed off as evidence of a sick sense of humor or an advanced mental problem, but Johnston is not your run of the mill left-wing nut.

Prize Winning Radical

In 2001 Johnston won a Pulitzer Prize “for his penetrating and enterprising reporting that exposed loopholes and inequities in the U.S. tax code.”

At the time he was the tax reporter for The New York Times, and now is a columnist for the trade journal, Tax Notes. In 2008 he left The Times after 14 years and has since been hawking books he authored with titles such as his current tome, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich – and Cheat Everybody Else and the scintillating Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill).

The Liberal Conspiracy

I’ve never held much stock in conspiracy theories, especially as they apply to the American news media and what one might call the “U.S. leftist elite.”

These condescending liberals are always certain they know better than the common man. They don’t need to conspire among themselves. Knee-jerk liberals know automatically what the leftist party line is at any given moment: big government, more regulation and control, higher taxes, and welfare state economics are all second nature to them. Mention an issue and they always parrot the left-wing party line.

Johnston’s Bilge

In 2001, I wrote the following: “In many ways a classic example of this is The New York Times. More particularly, its highly biased ‘reporter,’ David Cay Johnston. I’ve been reading his ‘reporting’ bilge for years and he never misses a chance to dump on people of wealth, U.S. corporations or, his special ‘bete noir’, tax havens and the offshore financial world in general.“

At that time in 2001, Johnson was engaged in a multi-article smear against American corporations that legally moved offshore to reduce high U.S. taxes and to increase shareholder equity value and dividends. He twisted facts to claim the true reason for these offshore moves was fattening corporate salaries.

Unfortunately this sort of class warfare is good for sensational, if false, headlines that stir up controversy. Democrats in the U.S. Congress, such as Michigan Senator Carl Levin, have used the manufactured issue of offshore tax havens to claim Republicans favor “big business” at the expense of that mythical “little man.” Johnston’s slanted reporting at The Times was a precursor to Senator Barack Obama’s “Stop Tax Haven Abuse Act” S. 681, first introduced in 2007.

I’m not going to bore you again with the economics or the facts about tax havens, but we should all recognize: 1) the Big Lie for what it is, and; 2) those charlatans who habitually seek to hoodwink the American people into surrendering our financial freedoms.

Johnston’s War

But I’ll let Johnston speak for his radical self. The following is a direct quote from his Mother Jones article – and, based on his past statements, I don’t think he is kidding:

Invade the Caymans!

In 1983 just 10% of America’s corporate profits were funneled through places that charge little or no corporate income tax; today more than 25% of profits go through tax havens. The Obama administration could tell the Caymans – now fifth in the world in bank deposits – to repeal its bank secrecy laws or be invaded; since the island nation’s total armed forces consists of about 300 police officers, it shouldn’t be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.

Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the IRS within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges.

Source: Obama To Declare War on Cayman Islands, Bermuda

This from Money Morning:

The leaders of 20 of the world’s most developed nations, the G20, will convene in Washington D.C. on Nov. 15 for an emergency financial summit considered by many to be the 21st century version of the Bretton Woods initiative of 1944. This will be the first chance for European leaders – many of whom blame the current financial contagion on U.S. free market capitalism run – to press for an overhaul of a global financial system the United States has dominated for more than 60 years.

The summit will “seek agreement on principles of reform needed to avoid a repetition of the problems and assure global prosperity in the future,” U.S. President George W. Bush, European Commission President Jose Manuel Barroso and French President Nicolas Sarkozy said in a joint statement.

However, Barroso was more explicit – and less diplomatic – earlier this week when he said that  “we need a new global financial order.”

President Sarkozy has also expressed his desire for a more dramatic remaking of the current financial system, which he says “has distanced itself from the most fundamental values of capitalism.” It was the French president who earlier this week pressed President Bush to call a summit of the G8 and include the developing nations of India and China.

Sarkozy, over the past week, outlined some of the broad principles of reform he hopes to achieve. Specifically he argued that “no bank that works with government money should be allowed to work with tax havens” such as the Cayman Islands. He also raised the issue of curbing executive pay.

“No financial institution should escape regulation,” the French president said, referring to hedge funds and private equity firms. And the world’s most prominent credit agencies – dominated by such U.S. institutions as Moody’s Corp. (MCO), Fitch Ratings Inc., and Standard & Poor’s – should have their role in the global credit market reduced after their “scandalous” behavior.

Sarkozy isn’t alone either. The European Union (EU) is also on board with tougher regulations on hedge funds, limits on executive pay, and new rules for credit rating agencies. And British Prime Minister Gordon Brown, who has been instrumental in pushing for reform, has called for 30 cross-border “colleges of supervisors” to be established by the end of the year to monitor the activities of the world’s 30 biggest banks.

Indeed, the recent rash of criticism from leading politicians is indicative of the prevailing sentiment in Europe that the failure of U.S.-style free market capitalism is most to blame for the credit crisis that has put the world economy at risk of a recession. For Sarkozy, Brown and others, reform will not end with increased oversight of financial institutions but extend to the fabric of the global financial system, as well as the U.S. dominance that lies at its heart.

“Europe wants it. Europe demands it. Europe will get it,” Sarkozy said in reference to global financial reform last Saturday.

And while President Bush has insisted that the United States will seek to preserve the foundations of democratic capitalism – a commitment to free markets, free enterprise, and free trade,” Sarkozy has branded the lax regulation that has become the hallmark of the U.S. economic philosophy as a “betrayal of the spirit of capitalism.”

To Europe, the capital excess that is behind the global financial meltdown epitomizes the behavior of an America that has essentially squandered its role as the standard bearer of global finance.

“We cannot continue accepting the increasing deficit of the world power,” Sarkozy said. “Americans for three decades have been living over their limits.”

Bretton Woods – Then and Now

In 1944, the United Nations Monetary and Financial Conference – a collection of 740 delegates from 44 Allied nations – convened in Bretton Woods, N.H. The goals were to prevent a repeat of the Great Depression and facilitate the reconstruction of Europe following World War II.

After three weeks of deliberation, delegates agreed to a number of principles that established the rules for commercial relations among the world’s major industrial states and served as the foundation for today’s financial system. To this day, that complex plan is known as the “Bretton Woods system of monetary management.”

The nations participating agreed to fix their exchange rates to the dollar. The dollar was, in turn, fixed to gold at a value of $35 per ounce of gold bullion.  The conference also led to the formation of the Bank for Reconstruction and Development, the General Agreement on Tariffs and Trade, and the International Monetary Fund (IMF).

The Bretton Woods system met its demise in 1971 when U.S. President Richard M. Nixon severed the link between the dollar and gold. Most major world economies now float their currencies. However, such Bretton Woods institutions as the Bank for Reconstruction and Development and the General Agreement on Tariffs and Trade (GATT) live on in the form of the World Bank and the World Trade Organization (WTO), respectively. The IMF, meanwhile, is currently negotiating broad-based bailouts for Iceland, Ukraine, Hungary, and Pakistan.

And analysts aren’t confident that the upcoming round of dialogue will produce the “very large and very radical changes,” that British Prime Minister Gordon Brown has called for and Sarkozy has seconded.

The original Bretton Woods conference took years of coordination and planning. It was also a three-week gathering of the world’s foremost economists, including John Maynard Keynes – not an impromptu political salon for world leaders to pontificate on the obvious shortcomings of the current financial system. And as the IMF’s continued intervention in many struggling world economies illustrates, many of the old Bretton Woods Institutions still have value.

“Things like this that produce real results for the world are planned years in advance,” Edwin M. Truman, who was an assistant secretary of the Treasury under U.S. President Bill Clinton, told The New York Times. “The notion that you’re going to have something come out of this in three months is probably naïve.”

The timing of the conference is also precarious, as it will come just 11 days after a new U.S. president is elected and just a few days before President Bush takes his last official trip abroad. The U.S. president will be joining an annual summit of Asian-Pacific leaders in Peru.

The meeting is being planned in such haste that the White House was not yet certain where it will actually be held. And with so many nations participating – not to mention a lame duck U.S. president – it unlikely the November summit will achieve anything substantive.

Still, there remains the hope that at least a framework of discussion – and perhaps even an outline for reform – can be established.

Instead the leaders who attend will be challenged to “agree on a common set of principles for reform,” White House Press Secretary Dana Perino told The Times. It will then be up to financial experts “to put meat on the bones when it comes to fleshing out the principles.”

Source: Will Calls for a “New Global Financial Order” Result in a Second Bretton Woods and the End of U.S. Dominance?

Meanwhile, up in the rarefied atmosphere of Capitol Hill, the U.S. Senate is engaged in a phony war on offshore tax havens. Eager Senators are playing to the news media gallery with bombastic and false statements about these so-called billions in lost taxes offshore.

Last week, it was that dynamic duo of the U.S. Senate Finance Committee, Baucus (D-Mont) and Grassley (R-Iowa). These senators are dumping all over the Cayman Islands. They claim any American corporations with a subsidiary company offshore (which is fully legal) should be treated as suspect tax dodgers.

The Baucus/Grassley show was based on a report the two senatorial pals ordered the Government Accountability Office to write.

The senators asked this congressional watchdog agency to investigate a five-story building (Ugland House) in the Caymans that is listed as the business address for corporate subsidiaries of more than 18,500 U.S. companies. That number has nearly doubled in the past four years.

About half of the companies that list their address as the Ugland House are American. The principal tenant of the building is the well-respected international law firm of Maples and Calder, which performs incorporations for global clients.

The So-Called Sinister Building…a Political Straw-Man

Possibly trying to keep a straight face, Senator Baucus said that “this building in the Caymans” is “one of the most likely places shady tax transactions could be sheltered. If American companies are setting up shop at the beach just to avoid their tax obligations, we can’t keep our heads in the sand. We must make sure honest American taxpayers are not footing the bill for corporations that aren’t paying their fair share.” Bravo, Senator! Go get ‘em!

But please note the false premise of this Baucus syllogism, (i.e. his deductive scheme of formal argument, consisting of a major and a minor premise and a conclusion).

His false premise is that “if” a U.S. company has an address at this building, then on that ground alone, the company automatically is suspect of tax evasion. That’s a ridiculous notion at best. Not to mention a totally false conclusion.

When I was in politics this sort of exercise was called setting up a “straw-man.” You define an object on your own terms, then attack it for fun and political profit.

A Bunch of Phony Numbers to Support a Shaky Theory

American corporations form offshore companies so they can take advantage of U.S. tax laws (yes, I said “U.S. tax laws”) that allow tax credits and other tax breaks for offshore earnings.

If done properly, American corporations can use these laws to legally avoid the onerous U.S. corporate tax rate of 35%. The U.S. has one of the highest corporate tax rates in the world, so it’s no wonder U.S. companies have a tough time competing globally.

By the way, senators, that high tax means lost American jobs and fewer taxes paid by U.S. workers.

U.S. companies also use offshore tax havens like the Cayman Islands to reduce their foreign tax liability. For example, an American company with operations in Japan can create an affiliate in the Cayman Islands. The American company can structure it so that the Cayman affiliate is earning interest, which is tax-deductible in Japan.

Much of this anti-tax haven baloney consists of senators making up higher and higher numbers of how much the IRS loses to offshore tax evasion.

In recent years, Senator Carl Levin has upped the fictitious lost tax number he invented from US$50 billion to US$100 billion.

But at the Finance Committee hearing, Senator Baucus blew the roof off that number. He claimed the Senate must “find legislative solutions to pressure the IRS and better enable them to collect on the nearly US$345 billion annually of legally owed but unpaid taxes,” according to Tax News.com.

(Why stop there? Do I hear US$1 trillion senators?)

The Biggest Tax Haven of All: The United States

Several economists and tax experts dispute even the US$100 billion number. They say a surge in the number of companies in the Cayman Islands does not correlate with lost taxes.

By comparison, they point out that America itself is one of the largest tax havens in the world, (for foreigners, but not for Americans). In fact, more than 850,000 companies are registered in the State of Delaware alone, including one Wilmington building where more than 200,000 companies have an address.

(Better rush right up to Wilmington and investigate that spooky building, senators!)

American companies also want to legally defer U.S. taxation of foreign income. Unlike many countries, including the European Union, America taxes income earned both at home and abroad. But if this money is reinvested abroad, the tax is deferred. (Thus the need for offshore subsidiaries.)

The lost tax revenue from the legal deferral of income from American investments abroad totaled US$11.9 billion last year. This number is expected to reach US$12.8 billion by the end of this year, according to estimates from the Office of Management and Budget.

By 2010, that number will reach US$14.6 billion, OMB estimates.

The Ruse that Jack Built

Predictable as clockwork, the Baucus/Grassley dream team called on good old Jack Blum to prove their case. Blum is a lawyer at the Washington D.C. law firm Baker & Hostetler.

But more importantly, he’s a paid IRS “consultant” and self-appointed specialist in innuendo. For years, senators have hauled out Jack to repeat his tired spiel for nearly every congressional anti-offshore tax hearing.

Not content with phony attacks on the Cayman Islands, professional witness Blum also went after three other Caribbean island tax havens, the British Virgin Islands (BVI), Nevis, and Belize.

As if it were some sort of crime, Blum intoned: “The BVI has more than 500,000 shell companies.” Not content with this implied smear he added: “It is important to understand that the structures are mere pieces of paper with no commercial reality,” while insisting that in his narrow, biased opinion, “offshore tax evasion is a massive threat to the U.S. tax system.”

No doubt Blum knows better, but tax truth does not match his canned agenda. These “mere pieces of paper” are actually incorporation documents that allow offshore companies to qualify for legal tax breaks worth billions annually. The U.S. Internal Revenue Code authorizes these legal documents so they comply with U.S. tax code. By the way, Congress could change the law that approves these documents if they really wanted to.

What the Lazy “Journalists” Forget to Tell You

Damn, if I don’t get tired doing the job of a lazy, and no doubt, biased, “news” media. These journalists just don’t seem to care one bit about the truth concerning offshore tax havens.

“Tax havens don’t necessarily detract from real investment,” a professor at Harvard Business School, Mihir Desai, says.

“It can actually be beneficial to tax mobile capital less than immobile capital. Otherwise the mobile capital will just go elsewhere. I would imagine that the presence of tax havens may well cost tax revenue, but that does not necessarily mean it is bad to have them around,” Mr. Desai said: “Tax havens can also facilitate investment by allowing investors to reduce their tax burdens.”

But the politicians in Congress in both parties are far more concerned about getting headlines and their own re-election than they are about helping American business or American taxpayers.

Good Old Tom Said It

I leave you to ponder this quote, from the late President and leading agriculturist, Thomas Jefferson of Monticello:

“The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure.”

And there is no place in the world where you’ll find more natural manure (or tyrants) than in Washington, D.C. – especially on Capitol Hill.

Source: What These Senators Conveniently ‘Forget’ to Tell You about Tax Havens