While Prosecutors Nail Banks Over Offshore

While Prosecutors Nail Banks Over Offshore


Today’s news that Credit Suisse is being probed by the Department of Justice as part of a wider probe into foreign banks suspected of aiding tax evasion is the latest sign of a government crackdown on the illegal practice. In February, four current and former Credit Suisse bankers were charged with helping wealthy Americans avoid paying taxes. Other banks targeted in the probe are HSBC (Europe’s largest bank), Julius Baer and Basler Kantonalbank. Evidence for the current investigation was provided by those banks’ rival, UBS, which agreed to hand over information on almost 5,000 secret accounts held by U.S. citizens as part of a settlement deal with DOJ in 2009.

Though prosecutors are taking an aggressive approach, lawmakers and regulators appear to be more passive in their approach to the problem.

Last week, two powerful Democratic senators introduced the Stop Tax Haven Abuse Act to help stop what they claim is $100 billion lost to offshore tax abuses. Among its provisions, it would give the Treasury secretary the authority to pursue foreign jurisdictions or financial institutions that impede U.S. tax enforcement. It would also strengthen penalties on tax shelter promoters and those who enable tax evasion by raising the maximum fine to 150 percent of any ill-gotten gains. Its prospects look dim, however, with Republican lawmakers fiercely opposed to any changes to the tax code that could be construed as tax increases.

The Internal Revenue Service is also delaying an offshore bank reporting rule, pushing back the deadline by which they have to disclose their efforts to track down their U.S. clients. Banks won’t be required to withhold 30 percent from payments that may have originated in the United States until January 1, 2014, and other withholdings on U.S.-sourced income won’t start until Jan. 1, 2015,reports Bloomberg News. Industry opposition to the proposal has been fierce, with one bank official saying it would turn U.S. citizens into “pariahs.” In response to initial criticism, the IRS emphasized that it would be targeting citizens with more than $500,000 in offshore bank accounts.

Transparency advocates warn that the longer that the proposal gets delayed, the more chance that it will be weakened by lobbyists from the Securities Industry and Financial Markets Association and others.

Five Years Before WikiLeaks, Rumsfeld Warned U.S. Can’t Keep Secrets

Five years before the WikiLeaks document dumps panicked the Defense Department and the State Department — leading to federal investigations and Congressional hysteria — Donald Rumsfeld was warning that the United States is “incapable of keeping a secret.”

In 2005, then-Defense Secretary Rumsfeld stated in one of his trademark “snowflake” memos that the system to keep information secure was a failure, reports the Federation of American Scientists’ Steven Aftergood on his Secrecy News blog.

“The United States Government is incapable of keeping a secret,” he wrote on November 2, 2005. “If one accepts that, and I do, that means that the U.S. Government will have to craft policies that reflect that reality.”

Wachovia Lobbyists Tried Influencing Bailout

In the darkest days of the financial crisis, lobbyists for Wachovia frantically sought to influence the shape of the government bailout, according to emails obtained by the Charlotte ObserverThe main priority was to ensure that the bank’s worst-performing loans would be included in the Treasury Department’s initial plan to buy distressed assets from the banks.

Wachovia lobbyists wanted to add the word “loans” to the legislation’s original definition of such assets, likely broadening the pool to include the bank’s struggling adjustable-rate mortgage portfolio. The bank was sitting on a $120 billion portfolio of such mortgages, and getting rid of them would have enormously benefited its balance sheet.

Blackwater May Have Overbilled The United States By $300 Million

Blackwater may have overbilled the federal government by more than $300 million for security work in Iraq and Afghanistan, according to two former employees who are suing the company.

In documents filed in federal court in Alexandria, Va., Melan and Brad Davis cite a report from an outside auditor who says that information about allegations of overbilling and bribing foreign officials was withheld from him by the State Department and Blackwater executives.

The audit clearly put Blackwater founder Erik Prince “on notice that his company may be overbilling for labor – in an amount in excess of $300 million,” claim the Davises in court papers, as reported by the Virginian-Pilot

Attorneys for Blackwater — now known as Xe Services — have not responded to the allegations.

Conflicts Of Interest Taint Academic Research

Conflicts of interest in the world of academic research have made headlines in recent years, particularly with drug studies conducted by doctors who have been paid by pharmaceutical companies or medical device companies.

But such issues also arise among economists, as noted in the Oscar-winning documentary, “Inside Job.”

In the most recent example, two professors at George Washington University released a research report last month that forcefully argued that the Federal Housing Administration should play a smaller role in insuring mortgages — without revealing that the paper was partially underwritten by private mortgage insurance company Genworth Financial, reports American Banker

Any pull-back in the trillion-dollar mortgage insurance market would naturally benefit private insurers like Gemworth. “FHA Assessment Report: The Role of the Federal Housing Administration in a Recovering U.S. Housing Market,” by Professor Robert Van Order, chair of the school’s Center for Real Estate and Urban Analysis there, and Professor Anthony Yezer, director of the university’s Center for Economic Research, states that the FHA could reduce its loan limits by 50% and still serve its core mission of helping low and moderate-income homebuyers.

Yezer confirmed that Gemworth helped fund the report but said that that was the extent of their involvement.

“I am not getting anything out of it, and Bob Van Order is not getting anything,” he told American Banker

Ferguson tells HuffPost via email that he’s not surprised by the allegations. “There has been lots of talk in academia, several universities and departments have announced new conflict of interest rules, in some cases meaningful (Stanford, the Wharton School), in most cases cosmetic,” he wrote. In addition, he noted that the American Economics Association formed a committee to study whether it should have ethics guidelines or standards, which it has never had in its history but it’s not clear where those efforts stand.

Elsewhere in academia, three prominent psychiatrists from Harvard Medical School and Massachusetts General Hospital were sanctioned earlier this month for violating conflict of interest rules, Pharmalot reports. Joseph Biederman, who is known for promoting the use of antipsychotics in children, Thomas Spencer and Timothy Wilens received grant money from several pharmaceutical companies while they were studying the companies’ drugs. Yet they neglected to report some of that outside income to their institutions while receiving grants from the National Institutes of Health to conduct the research.

NRC Inspectors ‘Dependent’ On Plant Operators Not Told About Risks

Inspectors from the Nuclear Regulatory Commission did not know about a significant safety problem at an Illinois nuclear plant in 2007 because they are usually “dependent” on nuclear plant operators to “identify and correct problems,” according to a NRC memo obtained by the Project on Government Oversight.

Plant managers did not recall informing the inspectors about the problems that led up to the incident — which involved the leak of a water system that cooled emergency equipment — led to a 12-day shutdown of the plant and reportedly could have led to a nuclear catastrophe.

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