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Transcript: Hidden Assets
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DANIEL BULLOCK (IN CONGRESSIONAL HEARING): Now I realize there is a price to be paid for being an American. It's called filling out a tax return, making sure it's correct, and sending it in.

BILL MOYERS: Daniel Bullock learned that the hard way. His recent appearance before a Congressional panel investigating tax cheating was a brief respite from his normal routine these days—sitting in a federal prison in Atwater, California.

BULLOCK: People still believe, even though the law's been around this way for a hundred years. "Hey, it's my money that I earned with my labor, and I ought to be able to keep it."

MOYERS: Bullock was an successful orthopedic surgeon—even doing a stint as the senior physician for the U.S. Olympic cycling team, treating patients like Lance Armstrong. But, after a dispute with the IRS over some back taxes, he went looking for a way to hide the income he earned from his medical practice.

BULLOCK: I believe the lure to be, as it is for all people, and that is, a little bit of greed.

MOYERS: A friend introduced bullock to this man — Lonnie Crockett. Crockett is what's known as a tax scheme promoter, someone who claims he can save you money by manipulating tax law.

Crockett told Bullock he could get out of paying income taxes. Part of the plan? Launder his earnings thru an off-shore bank account.

BULLOCK: What ended up being done was unlawfully evading taxes by sending money that should have been taxed in the United States off-shore and then bringing back.

DENNIS CRAWFORD, ACTING CHIEF IRS CRIMINAL INVESTIGATIONS: Basically, they take the money they've earned out of their left pocket with their left hand, it goes off-shore and it comes back into the right hand, they put it in their right hand pocket and spend it as they so choose.

MOYERS: The law is clear-using an off-shore bank account to hide income from the IRS is illegal. But, says the IRS, the use of such schemes is an epidemic. As many as two million Americans — most of them with incomes in the top 1% — may be hiding money overseas. The estimated cost to the U.S. Treasury? $70 billion a year.

Here's the IRS list of so-called "tax havens" — countries with banking secrecy laws that help tax cheaters hide their money from the prying eyes of law enforcement. It reads like a list of popular vacation destinations at your local travel agent. Antigua, The Bahamas, The Cayman Islands, Hong Kong, Panama, and Switzerland make the list, just to name a few. The Federal Reserve estimates that Americans have $800 billion in accounts in the Cayman Islands alone. Not all of that money is there illegally, but it's assumed that much of it is.

CRAWFORD: Many of our tax evasion schemes have an off-shore component because it makes it difficult for us to follow the paper trail. We believe those are the most egregious of tax evaders in some respects, because they've made our job very, very difficult.

MOYERS: So how is it that people like bullock send their money off-shore, and then get it back? In his case, he gave his money to the tax scheme promoter, Lonnie Crockett. Crockett put the money in an account here in America and then began a series of wire transfers.

BENJAMIN WAGNER, PROSECUTOR, DEPARTMENT OF JUSTICE: He would then route the money sort of around the loop, through foreign accounts and back in a sort of serpentine fashion back to a separate account, and in that fashion, it would be very difficult to follow the money. The money would wind up back in the control of the client who sent it, minus a fee of course, and then be free for them to use without having paid any taxes on it.

MOYERS: Bullock, and two friends, were able to move millions of dollars that way. But plain old cash smuggling — simply carrying money overseas — also remains a popular way to get money off-shore. That way, there's no record of wire transfers.

IRS AGENT (ON TAPE): You got $100,000 in here, and they're $10,000 bundles.

MOYERS: You're listening to an undercover recording of a sting operation. At a diner in California's Central Valley, an IRS agent is meeting with a promoter of tax evasion schemes. This promoter often moves cash.

AGENT: I think we're all working towards the same thing here, and that's what's important.

MOYERS: The undercover agent is posing as the owner of a chain of fast food restaurants who wants to send money off-shore. Fast food generates a lot cash. The promoter has a name for the service he's selling...

PROMOTER (ON TAPE): I call it one word, 'Freedom.'

AGENT: There you go.

PROMOTER: There is a man who said without financial freedom, there is no freedom. If we've got an Internal Revenue Service, a Federal Reserve, there will be no freedom.

MOYERS: And at the deal's completion in the parking lot, where the hand off occurs, the agent and promoter even share a lighter moment.

AGENT: Given to Wayne, February 1st, as a donation to further the cause of freedom.

PROMOTER: Isn't that what it's for?

MOYERS: That promoter, his name is Wayne Anderson, was eventually arrested and convicted. The government estimates that his operation shipped $50 million off-shore before getting caught.

Benjamin Wagner is a prosecutor for the Department of Justice. He handled the Wayne Anderson case. He also had a hand in putting Daniel Bullock in jail. He says that tax cheats, like Bullock, increasingly fit a pattern.

WAGNER: They were people who either owned their own businesses, people who had a small practice, a lot of professional type people who were dentists, doctors, architects, consultants, people like that who had some degree of control over the way they steered their income.

MOYERS: The reason is simple, says Wagner. Unlike salaried workers, whose employers withhold taxes from their paychecks, professionals and small business owners report their own income to the government. In other words, the IRS has only their word for how much money they make. That makes it easy to skim money to send off-shore.

BOB MCINTYRE, CITIZENS FOR TAX JUSTICE: We have a mandatory tax system that works really well, and we have a voluntary one that works terrible.

MOYERS: Bob McIntyre runs Citizens for Tax Justice, a liberal watchdog group that studies tax revenues. He says leaving it up to small business owners to report their own income is one reason cheating is so widespread.

MCINTYRE: Small business people are supposed to file honestly and they don't. So voluntary doesn't work too well.

WAGNER: The vast majority of taxpayers are honest, good Americans who play by the rules. But it's surprising and shocking at the numbers of people, and people that you would think would know better, who are involved in these schemes.

MOYERS: But Wagner told us, simple greed alone can't explain why so many people like Daniel Bullock are now breaking the law. The urge to cheat on taxes is as old as...taxes. Nowadays, though, it's encouraged by marketing, advertising, and technology. All of which puts the once underground world of secret off-shore banking within easy reach of people who have the money...and the urge.

CRAWFORD: There definitely has been an increase in these schemes. And the Web has been a way for them to reach more individuals and really to promote and advertise their tax scam and scheme packages.

MOYERS: The IRS has identified many companies, and their Web sites, which it suspects of promoting tax evasion. Along with the smaller promoters, are the names of some of the world's biggest banks, names like Barclays, HSBC, and the Royal Bank of Canada. The IRS says they offer services that may enable tax evasion.

CRAWFORD: It's broad, and it indicates that a lot of the tax paying public have access to those accounts and are, in fact, being pursued to spend their money to buy a scheme like that.

MOYERS: This marketing of off-shore accounts directly to the public by banks isn't the only thing that worries the IRS. It's thought that big accounting firms also sell a whole array of questionable tax avoidance schemes to the wealthy.

MCINTYRE: The fault is, of course, for the tax evaders, but also the accounting firms. I mean, this stuff wouldn't happen unless you had advisors willing to do it. You know, the Mafia had lawyers and the rich people have accountants.

MOYERS: According to the IRS, the suspicious services are packaged under the banner of "Wealth Protection," or "Private Banking," and they promise "anonymity." But the one hook that always appears is an offer for a debit or ATM card — usually a Visa or Mastercard — which allows the user to withdraw the money from his account any time, anywhere in the world.

WAGNER: Using debit cards drawn on off-shore banks is a hugely popular way of repatriating tax evasion funds.

MOYERS: Where once it might take a series of wire transfers for a tax cheat to get his money back, now it's as simple as walking into the local bank.

WAGNER: The beauty of the debit card is you don't need any of that stuff. You have a card, and you can walk into an ATM and you have your money like that. So it's a very easy way of getting your money like that.

MOYERS: These debit cards also provide another benefit. Because the card is issued by an off-shore bank, there's no record of the transactions in a bank office here in the U.S. And what if the IRS tries to get the records from the bank off-shore?

CRAWFORD: By definition, it's going to be in a tax haven country with bank secrecy laws, or else there would not really be a reason to do it. They want to get it in a location where it's difficult for us to find it and to unravel their scheme.

MOYERS: Tax haven countries, he says, won't cooperate with the IRS.

CRAWFORD: If the money came from a tax evasion scheme, and not from some other illegal activity, then they simply refuse to share the records with us for tax purposes.

MOYERS: The IRS believes that what's called 'transparency' — breaking down this wall of secrecy and getting access to banking records in tax haven countries — would go along way to ending off-shore tax evasion. But tax haven nations have refused to play ball. So in the late nineties the united states joined with other industrial nations to try and crack down on offshore tax havens.

MCINTYRE: The United States and the European countries worked in the second half of the Clinton administration to try to crack down on some of the secrecy laws of these tax havens which facilitates the tax evasion by saying, 'Look, if you don't shape up, we are going to impose some sanctions on you.'

MOYERS: Thirty countries in all…members of the Organization for Economic Cooperation and Development, or OECD, thought they had a plan to get rid of dirty money. It involved transparency — forcing tax havens to start sharing bank and other information about suspicious accounts. It was a united front — until, suddenly, the Bush administration pulled out and the campaign came to a screeching halt. . .

A coalition of conservative think tanks and bankers had got to the White House. The agreement, they argued, would mean Americans wouldn't be free to take advantage of lower tax rates elsewhere in the world. Some powerful Republican politicians weighed in.

In this letter to Treasury Secretary Paul O'Neill, House Majority Leader Dick Armey says the agreement's stated goal of reducing tax evasion is a "red herring," and is an effort to establish, "a global tax police."

House Majority Whip Tom Delay also wrote Secretary O'Neill. He said the agreement and others like it are, "assaults on financial privacy."

The conservative think tank The Heritage Foundation also lobbied the administration. It said the agreement would be hypocritical, and would prevent foreigners from investing their money strongly in the United States — itself a very big tax haven.

DAN MITCHELL, SENIOR FELLOW, THE HERITAGE FOUNDATION: If you're a foreigner, you can invest your money in the U.S. and by and large, earn income tax free and not have it reported to our home government. And this has been a successful strategy for the American economy.

MOYERS: Mitchell says if the U.S. forces other countries to share financial records, Americans would have to abide by the same rules, and with that, all those foreign investors would pull their money out of America.

Pamela Olson says the Bush administration agrees with many of those criticisms of the OECD agreement — she's the Acting Assistant Secretary of the Treasury for Tax Policy. But, she says, although the us has pulled out of the OECD effort, Washington does intend to press for agreements on transparency - on getting countries to share information — one tax haven at a time.

PAMELA OLSON, ACTING ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY: I think what we did was to strip off the parts of the project that were objectionable and that allowed the project to focus on what was really important. And what was really important was getting agreements with Caribbean countries and other tax haven countries to information exchange and transparency.

MOYERS: The U.S. has signed transparency agreements with several tax haven nations, but they don't take effect until 2004. Critics say this gives everybody — governments, tax cheats and their accountants — plenty of time to figure out other ways to foil the revenue agents.

KEN RIJOCK: Oh yes, from now on we're going to be fine. We'll tell you what you want. Meanwhile, I guarantee you that there are going to be many tax professionals in that jurisdiction who will be constructing alternative methods where by you still won't be able to get what you want.

MOYERS: When Ken Rijock talks about the underworld of tax havens, he knows wherein he speaks. The Caribbean was his second home.

RIJOCK: When I was involved in money laundering activities, I would sit out in one of these tax haven restaurants, having done my illicit work, I used to wonder when are the Marines going to land? When are they going to close these institutions?

MOYERS: Rijock was once a big time money launderer, hiding millions on behalf of his clients. Now, he advises law enforcement agencies. The economies of these tax haven countries, he says, have made dirty money a growth industry.

RIJOCK: What the off-shore laws allow is the creation of an entire class of financial service professionals. It's the golden cow. They will ensure that in one way or another, it will survive.

MOYERS: What's needed, he says, is tough prosecution.

RIJOCK: The only way the tax havens will go away tomorrow is if our government finally decides to arrest the presidents of those tax haven banks, try them in federal court in Miami, and close them down.

MOYERS: Rijock says, until there is real reform, the clever people will keep laughing all the way to the off-shore bank.

AGENT: Given to Wayne, February 1st as a donation to 'Freedom.'

PROMOTER: Isn't that what it's for? (BIG LAUGH)

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