Golden Visas Let People Like Harlan Crow Keep Too Much Hidden (2)

The fact that there are places in the world where wealthy Americans can hide their money beyond the reach of the American tax regime is not a reason to tread lightly when dealing with them. It is a call to broader action.

The latest example of a billionaire keeping his businesses’ money offshore is Harlan Crow. whose company, Crow Holdings, holds accounts in the Cayman Islands, a well-known tax haven.

We’ve learned much about Crow over the past few weeks—as a friend and benefactor of Justice Clarence Thomas, a collector of Hitlerania and garden gnome versions of history’s greatest monsters, and a holder of a “cashport” (I’m coining that term here) to St. Kitts and Nevis, another country that is well known as a tax haven.

Some call them golden visas, but that’s a euphemism intended to give the entire process the air of legitimacy. James Bond carries a golden visa, Harlan Crow buys a cashport.

The motivating factor isn’t always financial opacity alone as, for instance, a citizenship-by-investment program for Greece might be used to gain entry in the European Union. Cashports, however, are citizenship by investment programs with no economic or residence utility outside of offshore banking.

Cashports are part of the larger “citizenship by investment,” which is exactly what it sounds like. A purchased passport granting citizenship primarily to the sovereign state of financial anonymity and freedom from tax. Reported going rates vary, but an investment in real estate, a contribution to the sugar industry, or a contribution to the state itself of generally between $150,000 and $400,000 grants an individual full citizenship to St. Kitts and Nevis. This can be passed down from generation to generation, because it seems it’s never too early to start thinking about planning for your tax cheat grandchildren.

The secret to St. Kitts and Nevis’ secrecy, so to speak, lies in how little information they collect about their citizens’ financials. There isn’t much to leak if you don’t ask any questions, and therein lies the issue. There is more financial upside for them to operate as an information-blind tax shelter and run on tourism, sugar, and the citizenship-by-investment program than operate on the first two alone.

At risk isn’t simply tax revenue—but all the pertinant risks that come with obfuscating money flows, from organized crime to failed states to terror. At the risk of sounding alarmist, scratch a tax shelter and you’ll likely find a source of destabilization for finance and political systems and a funder of bad actors across the bad actor spectrum, from billionaires to bombers.

But these regimes couldn’t persist if the only individuals taking advantage of them were bombers. They bank, literally, on the quasi-legitimacy of investors such as Crow in order to garner the political and economic cache to weather the odd connection to terror or organized crime network. If we want to stop these bad actors, we have to make it more expensive and onerous for the wealthy to take advantage of it.

Information Transparency

First, the US simply can’t rely on leaks to find out which billionaires have secret citizenship in cashport countries. While there isn’t a lot one sovereign state can or should demand of another, knowing who paid for what cashport is a reasonable demand.

If that demand isn’t met, economic and diplomatic pressure can be placed on tax shelter states to alter the above calculus. It may remain more profitable to cater to the world’s tax dodgers, but it can be made too onerous to hide the identity of would-be American tax cheats.

St. Kitts and Nevis have already signed on to the OECD’s Common Reporting Standard, which requires financial institutions to collect clients’ tax residencies. But if the financial disclosure requirement begins and ends with institutions, and there isn’t a corresponding requirement at the state level, the effect is severely limited. That requirement must be made and the government made to account; economic sanctions shouldn’t be placed blithely on small states with fragile economies—but the option must remain open. Tax shelters are also shelters for money laundering and all the bad things that attach thereto.

Radical Domestic Action

Once we know (to the best of our abilities) the identities of Americans seeking citizenship in known cashport states, the path forward is a bit more clear. The penalty must be sufficient to deter the behavior.

A simple, unquestionably effective deterrent would be to offer offenders a come-clean grace period, then fine them 200% of the amount otherwise owed after the grace period expires. There must be an unremitting financial incentive in the form of an ironclad, no-avoiding-this penalty.

Where assets need to be liquidated, they will be. Where entities need to be put into receivership, they will be. Next-generation data mining and analytics can be employed to detect patterns and anomalies in financial transactions that may indicate potential evasion, and information gleaned from known shelter abusers can be used to train artificial intelligence models to zero in on the tell-tale signs of a dodger.

On the foreign policy front, financial access to unremittent tax havens must be curtailed. Restrictions can be placed on transfers of funds and assets to and from known havens, with approval and disclosure requirements before any transfer is approved.

Repeat offender tax havens, that fail to disclose information regarding American account holders, can be, in the extreme example, blacklisted entirely. In the era of cryptocurrency it won’t entirely shut off the inflows and outflows, but it will force billionaire tax cheats to take their chances on the blockchain.

Returning to the specific example of Crow, the financial secrecy of St. Kitts and Nevis that may have attracted him for tax purposes redounds to his benefit with regards to his gifts and largesse vis-à-vis Clarence Thomas. Barring one of the parties letting it slip, it will almost certainly never be known the extent to which Crow spent on Thomas—those records likely just plain don’t exist.

The Supreme Court needs an ethics code, of that there is little doubt. But the teeth of any such code will be filed unless foreign financial record shrouds are lifted, or Americans are incentivized not to make use of them. Disclosure statements are all well and good, but there is no risk to neglecting to mention a payment made here, or an account held there, if you can sleep soundly in the knowledge that those assets will never be discovered.

We’re only beginning to see the contours of the billionaire problem, and it’s already proven far larger than many of us would like to imagine.

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social.