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Bankers at WEF bite their tongues concerning tax evasion  (28.01.06)
The Tax Justice Network was not invited to attend the World Economic Forum, and our request for credentials was denied. I wondered why, since the issue we raise – corporate tax evasion – is of great interest to WEF's main audience, corporate CEOs. I imagined what I might say to those CEOs if I was given a badge and bumped into them in hallways and cocktail parties. It's always better if you know some specifics about a company, so I did a little research, focusing on the prominent bankers which WEF says are here this year. And then I realized why the Tax Justice Network wasn't invited. There are some things the bankers at WEF don't want to talk about.

Charles Prince, Chief Executive Officer, Citigroup, USA: Citigroup is winner of this year's Public Eye on Davos award, nominated by TJN for excelling in socially irresponsible behavior by engaging in tax evasion and facilitating tax evasion by its clients. A report, "Citigroup: a culture and history of tax evasion," is at www.taxjustice.net. It details the European Parking Scandal of 1975-1980; laundering money for Pinochet; the use of private banking accounts to hide and launder the money of Raúl Salinas, brother of the former Mexican president; Gabon dictator Omar Bongo; the sons of the late Nigerian dictator Sani Abacha and others; the Argentine offshore bank scam of the 1990s, plus a secret videotape wherein a Buenos Aires Citibanker offers to launder a "businessman's" profits. And more. Mr. Prince was invited but chose not to accept his award in person.

He had a lot of competition among bankers at WEF for the prize. For example:

William B. Harrison Jr., Chairman of the Board, J.P. Morgan Chase & Co., USA: The bank provided Enron with an abusive tax shelter known as Slapshot designed to "save" Enron more $120 million in taxes and earn the bank $5 million in fees. The U.S. Senate Permanent Subcommittee on Investigations said in 2002 that Slapshot relied on a phony $1 billion loan arranged and financed by J.P. Morgan Chase and concealed within a complex collection of loans, stock swaps, and structured finance transactions designed to prevent tax authorities from finding out what was going on. The subcommittee had to subpoena hundreds of boxes of documents, read thousands of emails, conduct numerous interviews, and spend months unraveling how that tax shelter worked.

Oswald J. Grebel, Chief Executive Officer, and Walter B. Kielholz, Chairman of the Board, Credit Suisse, Switzerland: A Credit Suisse subsidiary, Banque Leu in Geneva, was used by the clique of Mikhail Khodorkovsy, the convicted Russian tax cheat, to move hundreds of millions of dollars in money skimmed from his companies through transfer pricing as well as to facilitate insider trading in Yukos and other Russian stocks through shell companies in the Channel Islands and elsewhere. According to Elena Collongues-Popova, who was working for Khodorkovsky associate Alexei Golubovich, "More than $300 million was forwarded by various Golubovich-connected shell companies to the Swiss [Credit Suisse and BNP Paribas] bank accounts in 1998."

Credit Suisse was condemned by the country's banking commission for accepting in its Private Bank $214 million in suspect funds from the family of Nigerian dictator Sani Abacha. Credit Suisse, of course, is famous for protecting the loot of dictators, among them Ferdinand Marcos of the Philippines. According to Marie-Gabrielle Koller, a former attorney with accounting firm KPMG in Zurich, after Marcos was overthrown in 1986, KPMG secretly transferred $400 million from Credit Suisse Zurich to a Liechtenstein trust on the ex-dictator's behalf. The money has never been found.

Marcel Ospel Chairman, UBS AG, Switzerland: UBS runs the world's largest private bank, catering to the super-rich. UBS in 1997 and 1998 provided credit lines totaling several billion Swiss francs for 100 to 150 abusive tax shelters sold to KPMG clients according to the U.S. Senate Permanent Subcommittee on Investigations. It found UBS documentation that repeatedly described the transactions as motivated by tax considerations. One, entitled “U.S. Capital Loss Scheme - UBS ‘redemption trades,’ said: "The essence of the UBS redemption trade is the creation of a capital loss for U.S. tax purposes which may be used by a U.S. tax resident to off-set any capital gains tax liability to which it would otherwise be subject." the UBS document explains the “Economic Rationale” for redemption transactions to be: “Tax benefit for client,” Another UBS document states: “The motivation for this structure is tax optimization for U.S. tax residents who are enjoying capital gains that are subject to U.S. tax. The structure creates a capital loss from a U.S. tax point of view (but not from an economic point of view) which may be offset against existing capital gains.” UBS knew this was an illegal tax shelter.

In February 1998, an unidentified UBS “insider” sent a letter to UBS management in
London “to let you know that [UBS unit] Global Equity [D]erivatives is currently offering an illegal capital gains tax evasion scheme to US tax payers,” meaning the redemption transactions. The letter said: "This scheme is costing the US Internal Revenue [S]ervice several hundred million dollars a year. I am concerned that once IRS comes to know about this scheme they will levy huge financial/criminal penalties on UBS for offering tax evasion schemes. ... In 1997 several billion dollars of this scheme was sold to high networth US tax payers, I am told that in 1998 the plan is continu[ing] to market this scheme and to offer several new US tax avoidance schemes involving swaps. My sole objective is to let you know about this scheme, so that you can take some concrete steps to minimize the financial and reputational damage to UBS. ... P.S. I am sorry I cannot disclose my identity at this time because I don’t know whether this action of mine will be rewarded or punished." UBS halted redemption trades for several months, but then resumed them, providing the financing that made the illegal tax products possible.

Daniel Bouton, Chairman and Chief Executive Officer, Société Générale, France:
In the 1990s, the French government-owned arms manufacturer Thomson wanted to sell six frigates to Taiwan. This contravened French policy, which was to be friendly with China. So Thomson contracted with Elf, which employed Christine Deviers-Joncour as a "consultant, to persuade her lover, Roland Dumas (Foreign Minister 1989-1992), to change his mind about the frigates. A 24 million Euro payoff would be laundered through Elf.

Taiwan bought the six Lafayette frigates at a cost of $2.8 billion; the price was jacked up to include more than $300,000 for payoffs. Thomson declared the kickbacks to get a tax deduction! Then, in 1993, Taiwan navy Captain Yin Ching-feng, head of the Navy's arms acquisition office, discovered the true cost of the frigates and reported it. His body was found floating in the sea off the Taiwan coast. A government investigation later found that the Ministry of National Defense and General Headquarters of the Navy had inflated the price of the six French-made warships. And they concluded that millions in illegal commissions had been paid to French politicians.

Joel Bucher, a French banker who had been a manager at Société Générale in Taiwan, went to authorities there and told them that the bank had laundered payoffs. In Taiwan, 20 people, including three senior Navy officers, were jailed or punished for their roles. The French investigation has been handicapped by French officials' refusal to provide documents to the investigating magistrate.

Matthew W. Barrett, Chairman, Barclays Plc, United Kingdom: Barclays comes second only to Citigroup in a little known distinction. It has the second largest number of secret accounts in Clearstream, the financial paper clearing house. Citibank has 271, and Barclays is runner up with 200. At the discretion of Clearstream, clients can open non-published accounts that do not figure in any printed documents or records of international financial transactions. When law enforcers ask to see these records, whether they are investigating tax evasion or criminal activity, they don't exist. Half of Clearstream's 15,000 accounts are unpublished. Clearstream processed 1.8 million transactions in October 2005 and has $10 trillion in assets under custody.

Ernest Backes -- a Luxembourg banker who helped design and install the clearinghouse's computerized accounting system in the 1970s – detailed the secret system in a book, “Révélation$,” published in Paris in 2001. After the exposé, six prominent European judges involved in money laundering investigations called Clearstream one of "the black boxes of financial globalization.” The director of Clearstream was fired, and half-owner Deutsche Börse, bought out the 50 percent of shares owned by 93 international banks. But it didn’t change the secrecy system.

Why does Barclays (or Citibank) need secret accounts to handle its customers’ trades in stocks and bonds?

Josef Ackermann, Chairman, Group Executive Committee, Deutsche Bank AG, Germany: Deutsche Bank in 2003 was fined 59.3 million Euros by the Frankfurt district court for helping to facilitate millions of Euros in tax evasion by thousands of its customers. The bank helped customers avoid composite tax on interest earnings by opening branches in tax havens such as Luxembourg, Switzerland and Liechtenstein, then advising customers to move untaxed earnings into accounts in these offshore branches, thus avoiding German taxes. The bank's board knew about the illegal activities and allowed them to continue.

Rijkman Groenink, Chairman of the Managing Board, ABN AMRO Bank NV Netherlands: The bank was assessed $80 million in fines for violating regulations to prevent money-laundering. The U.S. Treasury's Financial Crimes Enforcement Network said that ABN's ''serious, longstanding and systemic'' problems allowed people from Russia and other former East bloc countries to move $3.2 billion to shell companies in the United States from August 2002 to September 2003. The U.S. had already warned banks that such fund transfers were being used by criminals to move money out of the former communist countries. The transfers were also used for tax evasion. Part of the fine was also penalty for ABN AMRO's effecting wire transfers and trade transactions from 1997 to 2004 that violated economic sanctions against Libya and Iran.

Tax evading banks work closely with the big four [sometimes called "the final four"] global accounting firms, who wrote the book on tax evasion. KPMG got the Public Eye award last year, with stiff competition from the others. They are all represented here: Michael Rake, International Chairman, KPMG, United Kingdom; James S. Turley, Chairman and Chief Executive Officer, Ernst & Young USA; Samuel A. DiPiazza Jr, Global Chief Executive Officer, PricewaterhouseCoopers USA; William G. Parrett, Global Chief Executive Officer, Deloitte USA. The American firms are also well represented in investigations into tax evasion and money-laundering conducted by U.S. authorities. We can get to them next year. Who knows? Maybe WEF will let TJN meet them on the inside.

Lucy Komisar is a New York journalist and member of the steering committee of the Tax Justice Network.


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