On the Pandora Papers (10/11/21)

Readers of this blog are aware of the major investigation and
related articles about the “Pandora Papers.”  The Pandora Papers leaks arise from an investigation by the International Consortium of Investigative Journalists (“ICIJ”), here, which previously disclosed the Panama Papers.  The ICIJ page on the Pandora Papers is here.

I have not written on the Pandora Papers because the principal focus of the revelations has
been disclosing hidden wealth, often from corrupt endeavors, in secrecy jurisdictions (often referred to as tax havens, tax being one of the principal reasons such secrecy jurisdictions attract wealth).  One previously identified secrecy-friendly
jurisdiction is, unfortunately, the U.S. through
certain states which have enacted corruption-friendly laws.

The Wikipedia entry for the Pandora Papers is here.  Wikipedia usually does a good job of updating
with key information.

I offer some links to and excerpts from some articles I
found helpful.  Some of the links may
require subscriptions.  This is necessarily an anecdotal sample, but includes some that I thought particularly interesting and potentially informative to readers.

• Erin Adele Scharff & Kathleen DeLaney Thomas, Five
myths about tax evasion
(WAPO 10/8/21), here.  Excerpts:

Myth No. 4

Tax havens are all abroad.

of tax evasion tend to describe the problem as U.S. taxpayers transferring
money overseas. The Tax Justice Network’s list of top tax havens, for example,
focuses on countries (the British Virgin Islands, the Netherlands and
Singapore, among others) where laws allow corporations to book profits in
low-tax jurisdictions. Another list focuses on countries (including Taiwan,
Bermuda and Liechtenstein) where foreign investment exceeds expected economic

the Pandora Papers make clear, however, for foreign nationals the United States
can serve as a tax haven. The rich can hide their wealth from local taxing
authorities and the origins of that wealth from anti-corruption advocates. U.S.
banking and trust laws make it hard to identify the owners of assets. For
example, South Dakota allows virtually anyone to create a trust and name
themselves as the trust’s beneficiary. The state also provides significant
protection of trust assets from creditors and ensures the privacy of trusts.

fact, the Tax Justice Network ranks the United States just ahead of Switzerland
in its Financial Secrecy Index. Of course, this is not the first time a trove
of tax documents has shined a light on the United States’ role in hiding
foreign assets. At the beginning of this year, Congress enacted new measures
requiring more reporting of asset ownership, but states still have exceptional
leeway to craft laws that help people avoid paying their share. 

• Kelly Phillips Erb, Pandora Papers’ Big Tax Reveal Is
Hardly a Shock (1)
(BloombergTax 10/6/21), here.  Ms. Erb notes the ease with which assets can
be hidden in states like South Dakota which has become perhaps the first U.S. destination
for hiding assets whether corrupt or not. 
The ease of hiding assets, she notes, 
has resulted in the U.S. being recognized as a player in international secrecy jurisdictions:

In 2020, the Tax Justice Network
ranked the U.S. second in its Financial Secrecy Index, only behind Switzerland.
A high ranking, the organization notes, doesn’t necessarily mean a country is
more secretive, but does mean that “the country plays a bigger role in enabling
wealthy individuals and criminals to hide and launder money extracted from
around the world.”

* * * *

U.S. has traditionally resisted calls to reveal ownership of assets inside its
own borders, despite our insistence that other countries, like Switzerland, do
so. Nonetheless, earlier this year, Congress passed the Corporate Transparency
Act, touted as an effort to shore up existing money-laundering laws to prevent
bad acts. However, the reporting rules, as written, don’t appear to apply to
all trusts and partnerships; the Secretary of the Treasury has until January 1,
2022, to issue detailed regulations.

• Jodi Vittori, Five Things the United States Can Do to Stop Being a Haven for Dirty Money (Carmegie Endowment for International Peace 10/7/21), here.  The five listings are (go to the page for the discussion of each:

  • Back up the Corporate Transparency Act with Tough Regulations
  • Improve U.S. Financial Intelligence Capabilities
  • Place More Financial Enablers under the Corporate Transparency Act’s Rules
  • Stop Exempting Real Estate from Many Rules to Combat Money Laundering
  • Treat Corruption like a Core National Security Issue

• Ronen Palan, Pandora papers: ‘it’s time to pursue
lawyers and accountants who enable tax evasion’ – offshore tax expert Q&A

(The Conversation 10/4/21), here.  Some excerpts:

            Maybe it’s
time to create something similar to what applies in medicine, so that, if
enablers contravene certain standards, they can be prosecuted – even in
countries who are not directly affected by their activities. If they went to
such a country, they could be arrested on arrival. 

Should we create a new international institution dedicated
to stamping out tax evasion?

            In practical
terms, the three places that matter when it comes to creating international
regulations are the US, EU and China. Unfortunately they are not agreeing with
one another on much right now, so it will be difficult to reach an agreement
about such an institution. Even if they did agree, they would be accused of
imperialism by smaller countries, or of acting as dictators.

            Of course,
these three players would still need to agree on an initiative to really go
after enablers, so you can make the same criticism of this strategy, but it is
at least more modest in its scope and therefore potentially more realistic.

Are all these revelations actually helpful?

certainly a danger of media saturation, in which the public knows about these
kinds of activities and may be less interested by now. But we need to emphasise
that the consequences are not going away: to run a modern state, it’s very
expensive. To pay for a good education system, a good health system, properly
functioning infrastructure and so forth, somebody has to pay for it.

            If the rich
are avoiding paying their share, somebody else is picking up the tab, and
that’s either the poor or the squeezed middle classes. So if the public are
tired of all this scandal, it doesn’t change the fact that they are suffering
because of it.

• Finally, on the subject of professionals/enablers, I have discussed
previously the indictment of Carlos Kepke, a Houston lawyer, who allegedly assisted Robert Smith who received an NPA and Robert Brockman who was indicted.  I have discussed Kepke before.  See Houston Tax Attorney Indicted for Conspiracy and for Aiding
and Assisting
(Federal Tax Crimes Blog 4/15/21; 4/16/21), here;
and Individual B, the Houston Attorney in the Smith NPA, Is Unmasked (Federal Tax Crimes Blog 12/1/20;
12/2/20), here.  Kepke makes an appearance in at least one
article on the Pandora Papers, although it is not clear whether the information about him and his
activities is from the Pandora Papers (all may be from public disclosures
before the Pandora Papers).  In any event,
here is the discussion I found (Debbie Cenziper & Will Fitzgibbon, Rogue
Americans Stashed Assets Offshore, Eluding Victims and Impeding Investigators

(WAPO 10/4/21), here

federal prosecutors have identified Godfrey’s firms in court cases as offshore
providers to Americans who have been accused of wrongdoing. [Glenn Godfrey is identified as a Belizean enabler]

            One was
Jared Wheat, convicted of selling adulterated and unapproved prescription drugs
over the Internet through a Belizean company set up by CILTrust. [CIL Trust is a Godfrey-related entity]

            The other
was billionaire Robert F. Smith, who evaded millions of dollars in taxes
through a trust established at CILTrust. Smith settled with prosecutors last
year and was not charged. In April, the Houston lawyer who arranged to set up
the trust on Smith’s behalf was indicted for allegedly conspiring to defraud
the United States.

indictment referred to Godfrey’s firm 20 times, alleging that the lawyer,
Carlos Kepke, helped Smith maintain a “false paper trail” to conceal assets
from the Internal Revenue Service.

 * * * *

             In 2018,
the Justice Department asked for financial records, ownership information,
letters and other correspondence related to a 2000 trust established by
CILTrust for technology investor Smith. Prosecutors alleged that Smith
illegally set up the trust to hide assets from the IRS.

            In a
statement that appears in the documents, Godfrey disclosed to the U.S.
government that he had worked with Houston attorney Kepke to help Smith set up
the trust. Godfrey, according to his statement, met Kepke in the mid-1990s at
an asset protection conference in Houston.

            Kepke and
CILTrust also helped to create two Belizean trusts for Smith’s financial backer
and mentor, Robert T. Brockman, the records show. In 2020, the Texas software
billionaire was indicted in what authorities describe as the largest tax fraud
in U.S. history. Brockman pleaded not guilty; the case is ongoing.

            In his 2018
statement, Godfrey told U.S. prosecutors that he ended his firm’s relationship
with Smith in 2009 — nine years earlier.

was very concerned that it was in [the] dark as to what exactly Mr. Kepke and
Mr. Smith were doing with assets,” Godfrey wrote.

            Smith last
year agreed to pay $139 million in fines and penalties and is cooperating with
prosecutors. In April, a grand jury indicted Kepke.

            Kepke did
not respond to a request for comment. Smith declined to comment. In a letter to
investors last year, Smith wrote, “I should never have put myself in this