Elite Banking at Your Expense: How Secretive Tax Havens are Used to Steal Your Money

Posted on March 13, 2019 by Reid Mukai

By Robert J. Burrowes

Tax havens are locations around the world where wealthy individuals, criminals and terrorists, as well as governments and government agencies (such as the CIA), banks, corporations, hedge funds, international organizations (such as the Vatican) and crime syndicates (such as the Mafia), can stash their money so that they can avoid regulation and oversight and, very often, evade tax. According to Nicholas Shaxson: ‘Tax havens are now at the heart of the global economy.’

Which is why, as he explains it: ‘The term “tax haven” is a bit of a misnomer, because such places aren’t just about tax. What they sell is escape: from the laws, rules and taxes of jurisdictions elsewhere, usually with secrecy as their prime offering.’ See ‘The tax haven in the heart of Britain’. A tax haven (or ‘secrecy jurisdiction’) then is a ‘place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere’. See Treasure Islands: Tax Havens and the Men Who Stole the World.

Tax havens are a vitally important part of the global infrastructure of corruption and criminality – see ‘Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption’ – that enables privileged individuals and their organizations to legally and illegally steal money from the rest of us, particularly those in developing countries, and to have the services of a vast network of accountants, bankers, lawyers and politicians (often from captured legislatures) to help them do it, and to ensure that they get away with it.

How many tax havens are there? Where are they? How much money do they have? Who uses them? Why? How do they work? Why does all this matter to us? And what can we do about them?

Tax Havens: how many and where are they?

In his book Treasure Islands: Tax Havens and the Men Who Stole the World, author and financial journalist Nicholas Shaxson identified about sixty ‘secrecy jurisdictions’ or ‘offshore groups’ around the world which he divided into four categories, as follows.

The most important category, by far, is those tax havens that form the spider’s network of havens centred on the City of London. It has three main layers: there are two inner rings – Britain’s Crown Dependencies of Jersey, Guernsey (which includes the sub-havens of Sark, Alderney and Brecqhou) and the Isle of Man, and its overseas territories such as the Cayman Islands, Bermuda, the British Virgin Islands and Gibralter – which are substantially controlled by Britain. The third layer is an outer ring with a more diverse array of havens, like Hong Kong, Singapore, the Bahamas, Dubai and Ireland, which are outside Britain’s direct control but have strong historical and current links to that country and the City of London (which I will discuss below). This network controls almost one half of all international bank assets.

The second category of tax havens is those in Europe notably including Switzerland, Luxembourg – see ‘Explore the Documents: Luxembourg Leaks Database’ – the Netherlands, Belgium and Austria, as well as microstates such as Liechtenstein and Monaco. While ‘Geneva bankers had sheltered the secret money of European elites since at least the eighteenth century’, the European havens ‘got going’ during World War I as governments raised taxes sharply to pay for the war.

The third category of tax havens is that focused on the United States. It has three tiers as well. At the federal level, the US government offers a range of tax exemptions, secrecy provisions and laws designed to attract foreign money. This means, for example, that US banks can legally accept proceeds from a range of crimes as long as the crimes are committed overseas. The second tier involves individual US states such as Florida (where Central/South American elites do their banking and the countries adversely impacted are prevented by US secrecy provisions from accessing relevant data, and where much Mob and drugs money is hidden too), Delaware, Nevada and Wyoming, where even terrorist money is protected by secrecy provisions. The third tier of the US network is the overseas satellites such as the American Virgin Islands, the Marshall Islands, Liberia and Panama, with the latter, according to Jeffrey Robinson, being ‘one of the filthiest money laundering sinks in the world’. See The Sink: Terror, Crime and Dirty Money in the Offshore World.

As Shaxson notes: ‘offshore finance has quietly been at the heart of Neoconservative schemes to project US power around the globe for years. Few people have noticed.’

The fourth category of tax havens identified by Shaxson includes those that do not fit in the categories above, such as Somalia and Uganda.

The (incomplete) list of tax havens on the website ‘Tax Havens of the World’ will give you some idea of where these secrecy jurisdictions are located but there are important omissions in this list, notably including the City of London Corporation.

For a brief look at 15 tax havens (again, notably excluding some of the most important) and some of the corporations that use them, see ‘What Are the World’s Best Tax Havens?’

And for a highly instructive and utterly sobering video documentary on British Tax Havens, see ‘The Spider’s Web: Britain’s Second Empire’. This documentary will inform you, among many more important things, that the building housing Her Majesty’s Revenue and Customs, the UK tax office, is owned by an offshore company in Bermuda!

To summarize the central aspect of the development of tax havens following World War II: ‘The British Establishment – an old boys network of privileged elites – had carved out a lucrative vehicle for themselves in the offshore world after the demise of Empire. They transformed themselves from administrators of Empire to financial handlers for the global elite and multinational corporations.’ See ‘The Spider’s Web: Britain’s Second Empire’.

Before concluding this section, it is worth emphasizing that, as Shaxson explains it, ‘the offshore world is not a bunch of independent states exercising their sovereign rights to set their laws and tax systems as they see fit. It is a set of networks of influence controlled by the world’s major powers, notably Britain and the United States. Each network is deeply interconnected with the others.’ He goes on: ‘The world’s most important tax havens are not exotic palm-fringed islands, as many people suppose, but some of the world’s most powerful countries.’ Shaxson quotes Marshall Langer, a prominent supporter of secrecy jurisdictions: ‘It does not surprise anyone when I tell them that the most important tax haven in the world is an island. They are surprised, however, when I tell them that … the island is Manhattan. Moreover, the second most-important tax haven … is located on an island. It is called the City of London.’

The City of London Corporation

What is the City of London Corporation, also known as the ‘Square Mile’? It is ‘a 1.22-square-mile slab of prime central London real estate that stretches from the Thames at Victoria Embankment, clockwise up through Fleet Street, the Barbican Centre, then to Liverpool Street in the north-east, then back down to the Thames just west of the Tower of London.’ See Treasure Islands: Tax Havens and the Men Who Stole the World.

According to Shaxson, the City of London Corporation, the ‘modern period’ of which dates from 1067 (yes, that is not a typing error), is ‘the local-government authority for the 1.2-square-mile slab of prime real estate in central London that is the City of London. The corporation is an ancient, semi-alien entity lodged inside the British nation state; a “prehistoric monster which had mysteriously survived into the modern world”, as a 19th-century would-be City reformer put it.’

Importantly, Shaxson explains, ‘the role of the City of London Corporation as a municipal authority is its least important attribute. This is a hugely resourced international offshore lobbying group pushing for international financial deregulation, tax-cutting and tax havenry around the world.’ Moreover, it is ‘the hub of a global network of tax havens sucking up offshore trillions from around the world and sending it, or the business of handling it, to London’. Notably, so powerful is the City of London that no sovereign or government of Britain in a thousand years has had the courage to seriously take it on and attempt to subject it to British government control. See ‘The tax haven in the heart of Britain’.

How much money is in Tax Havens?

So how much of the world’s wealth is stashed in tax havens around the globe? According to the Tax Justice Network in its 2012 report written by James S. Henry ‘The Price of Offshore Revisited: New Estimates for “Missing” Global Private Wealth, Income, Inequality, and Lost Taxes’: ‘A significant fraction of global private financial wealth – by our estimates, at least $21 to $32 trillion as of 2010 – has been invested virtually tax-free through the world’s still-expanding black hole of more than 80 “offshore” secrecy jurisdictions. We believe this range to be conservative…’ He goes on to emphasize that ‘this is just financial wealth. A big share of the real estate, yachts, racehorses, gold bricks – and many other things that count as non-financial wealth – are also owned via offshore structures where it is impossible to identify the owners’.

Henry also notes that given that Credit Suisse estimated global wealth in 2011 at $231 trillion, the amount of money in secrecy jurisdictions is conservatively estimated at 10% of global wealth.

But other figures do indeed suggest this estimate is low. Shaxson cites compelling evidence that ‘More than half of world trade passes, at least on paper, through tax havens. Over half of all banking assets and a third of foreign direct investment by multinational corporations, are routed offshore.’ Moreover, as long ago as 2008, the US Government Accountability Office reported that 83 of the 100 biggest corporations in the USA had subsidiaries in tax havens and the following year, using a broader definition, the Tax Justice Network discovered that ninety-nine of Europe’s hundred largest companies used offshore subsidiaries. And in each country, ‘the largest user by far was a bank’. See Treasure Islands: Tax Havens and the Men Who Stole the World.

In any case, the most recent estimate by the Tax Justice Network indicates ‘tax losses to profit shifting by multinational companies (a)pplying a methodology developed by researchers at the International Monetary Fund to an improved dataset… of around $500 billion a year’. See ‘New estimates reveal the extent of tax avoidance by multinationals’.

To reiterate then, on the understanding that these estimates are probably quite low, by 2010, between $US21 and $US32 trillion had been taken out of circulation so that it was beyond the laws, financial regulations and taxes that the rest of us cannot escape. But that figure has been added to by half a trillion dollars each year since, by moving more money into tax havens. And don’t forget: this figure does not include non-financial wealth. How many gold bricks, yachts, artworks and racehorses do you own and have stashed away somewhere free of scrutiny?

Who uses Tax Havens? And why?

As I mentioned above, tax havens are used by wealthy individuals (including businesspeople, sports and pop stars), criminals and terrorists, as well as governments (and their agencies), banks, corporations (such as Amazon and Google), international organizations and crime syndicates (such as the Medellin Cartel). While motives vary, in essence the lack of regulation and oversight, as well as tax evasion, are the reasons that individuals and organizations use them.

An individual might want to hide stolen wealth, to evade tax or cheat a divorced spouse out of their share of the family fortune. A bank, corporation, crime syndicate, international or terrorist organization might want to evade scrutiny of the source of their money and/or evade tax on windfall or even ongoing profits (legal and/or otherwise). A government might want to hide the ‘dirty money’ it uses to finance ‘black ops’ (that is, illegal and secret military violence such as that carried out by the CIA). But there are myriad explanations.

In John Christensen’s analysis of over 100 offshore clients of accounting firm Deloitte Touche he studied in Jersey, he found that the clients were engaging in insider trading, market rigging, failure to disclose conflicts of interest, weapons trading, illicit political donations, contract kickbacks, bribery, fraudulent invoicing, trade mispricing and tax evasion. See ‘The Spider’s Web: Britain’s Second Empire’.

Most people have heard of the money stashed away by corrupt dictators like Suharto in Indonesia, Ferdinand Marcos in the Philippines and Mobuto Sese Seko of Zaire (now Democratic Republic of the Congo) each of whom stole from the people of their country. However, they could only do this with the help of western enablers and ongoing elite resistance to developing country attempts to create a more transparent and fairer process for collecting tax on cross-border financial flows. As a result, Alex Cobham of the Tax Justice Network observes, worldwide, developing nations lose in excess of $1trillion per year in ‘capital flight’ and tax evasion to wealthy countries. See ‘The Spider’s Web: Britain’s Second Empire’.

But these more public examples, while terrible, tend to obscure two important facts. The amount stolen from sub-Saharan Africans, for example, between 1970 and 2008 was at least five times the total amount of their foreign debt during that period – see ‘The Spider’s Web: Britain’s Second Empire’ – and, by highlighting these examples, attention is drawn away from even worse and ongoing examples of such criminality by those corrupt/criminal individuals and organizations (including banks, accountancy and legal firms, corporations, international organizations, crime syndicates and governments) committed to using outright theft, fraud, money laundering and other devices to steal wealth from ordinary people all over the world.

So, for example, if one follows the money trails of various lucrative financial operations, some technically legal but immoral and others simply illegal, apart from the world’s major corporations, one quickly comes across the names of the major (and well known) banks and financial institutions (such as the Bank of England, Barclays, Goldman Sachs, JPMorgan Chase…), the ‘big four’ accountancy firms (Deloitte, Ernst & Young (EY), KPMG and PricewaterhouseCoopers), and elite lawyers (such as those in London’s ‘Magic Circle’, like Clifford Chance, Mourant du Feu & Jeune, and Slaughter and May). See, for example, Treasure Islands: Tax Havens and the Men Who Stole the World, ‘New estimates reveal the extent of tax avoidance by multinationals’ and ‘Looting with Putin’.

Apparently, like major corporations and crime syndicates, few banks, accountancy firms and lawyers have ethics policies that require them to follow the law and to exercise ‘due diligence’ (check out a client before signing a contract) so that they can steer clear of handling illegal and immoral profits, especially if they are monstrous.

In fact, according to a US Senate report, ‘virtually every major bank in the world – especially the biggest in North America and Europe – holds accounts for offshore banks and/or banks in suspect jurisdictions’. See The Sink: Terror, Crime and Dirty Money in the Offshore World.

As Eva Joly MEP, vice-chair of the Panama Papers Committee of the European Parliament, succinctly puts it: ‘Ordinary people are paying taxes. Rich people are not.’ See ‘The Spider’s Web: Britain’s Second Empire’.

The Vatican

But perhaps the example which best illustrates the moral depravity of those who use tax havens is the Vatican. In his carefully researched book Operation Gladio: The Unholy Alliance between the Vatican, the CIA and the Mafia author Paul L. Williams recounts the efforts of the CIA, former Nazis, the Sicilian/American Mafia, the Vatican and even Freemasonry to resist an anticipated postwar invasion of western Europe by those ‘Godless communists’ in the Soviet Union by establishing ‘stay-behind units’ (clandestine military and paramilitary units) throughout the countries of Europe (Belgium, Denmark, Italy, Netherlands, Norway, Portugal…) led by former Nazis and composed of ‘die-hard fascist fanatics’.

This alliance to fight the Cold War against the former Soviet Union and the rising tide of progressive governments in Europe and the rest of the world, particularly as the US war on Vietnam gathered pace, led, as Williams chillingly puts it, to ‘the toppling of governments, wholesale slaughter and financial devastation’ around the world. It was also, of course, the forerunner to its equivalent – Operation Condor – to resist, and destroy if possible, the spread of progressive movements, ranging from communism to liberation theology, throughout Central/South America.

While the Vatican played a number of unsavory roles in this alliance, including its facilitation of massive numbers of heroin addictions, its use of counterfeit securities, participation in false flag attacks that killed thousands and strings of gangland slayings, support of military juntas (that massacred tens of thousands) and the ‘purging’ of progressive priests (including Archbishop Óscar Romero of San Salvador and two Jesuit priests denounced by Fr. Jorge Mario Bergoglio, now Pope Francis, in Argentina: see ‘Who is Pope Francis? Jorge Mario Bergoglio and Argentina’s “Dirty War”’) while causing the financial destitution of thousands of families, one of its key ongoing functions, designed to maximize the Vatican’s power while highlighting its moral and spiritual bankruptcy, was to act as ‘God’s banker’ for many of these operations. See Operation Gladio: The Unholy Alliance between the Vatican, the CIA and the Mafia.

It did this, for example, by accepting Mafia/Medellin Cartel-collected drugs money (for a 15-20% cut) into the Vatican Bank (technically: Istituto per le Opere di Religione or Institute for the Works of Religion) and then laundering it through its shell companies – such as Cisalpine Overseas Bank, Astolfine SA, United Trading Corporation, Erin SA, Bellatrix SA, Belrose SA, Starfield SA and Nordeurop Establishment – in tax havens in the Bahamas, Liechtenstein, Luxembourg, Panama and Switzerland.

With the CIA providing services, such as the transport of Mafia/Medellin cocaine to drug dealers in the US, its share of the drug profits (cycled through its own CIA-controlled banks including Continental Illinois, Castle Bank & Trust, and Bank of Credit and Commerce International but eventually involving many of the most prestigious banks in the US, as the money was passed to the Vatican Bank) were used to finance key aspects of Operations Gladio and Condor with weapons also supplied by the CIA from NATO arsenals. But there was plenty of Vatican money in these Operations too.

As an aside, so devastating was the fallout from the ongoing exposure of the many aspects of Vatican corruption that, by the beginning of the twenty-first century, Roman Catholic membership was falling by 400,000 per year in the USA alone but the trend was even stronger in Europe with ‘magnificent churches and cathedrals’ becoming museums visited solely by tourists, parishes being boarded up, seminaries and convents closed, and parochial schools consolidated. And this was before the ‘plague of pedophilia’ had fully hit further decimating the Church’s tattered reputation. To this day, the Vatican Bank remains ‘one of the world’s leading laundries for dirty money’. See Operation Gladio: The Unholy Alliance between the Vatican, the CIA and the Mafia.

How do Tax Havens work?

Each tax haven offers its own unique combination of services. After all, it is a tough market competing for the world’s wealth and so each jurisdiction has developed its own set of services designed to maximize its attractiveness to potential clients. In essence, this means that there is some ongoing ‘competition’ to reduce regulatory and oversight requirements so that each tax haven can attract clientele. This has become so extreme that basic requirements of banking for those who do it legally, such as proof of identity, are not required in the offshore world. In fact, even your true name can be withheld if you wish. It is easier to avoid any risk of embarrassment from exposure this way.

As a result, virtually any jurisdiction will open an account (or as many accounts as you want) in whatever names you specify. Then, usually employing a variety of devices, ranging from secret bank accounts, nominee directors (usually locals who play no part in the organization bar give it their name) and structures such as shell companies (that exist on paper and perhaps a wall plaque somewhere, but nothing else) and trusts (which, unlike the legitimate version, appear to separate responsibility and control from the benefits of ownership but actually do not), to processes such as transfer pricing (a technique by which companies ‘shift paper profits into low-tax countries and costs into high-tax countries’ to minimize – or eliminate – tax payments) and often employing a convoluted process that rapidly shifts monies through several jurisdictions so that it becomes ‘untraceable’ (because authorities must get permission to access each jurisdiction in turn in any effort to trace the money), profits are effectively hidden and any accountability to authorities of any kind utterly eliminated. See Treasure Islands: Tax Havens and the Men Who Stole the World.

For one simple example of such a strategy, employing a technique known as the ‘double Irish, Dutch sandwich’ (which is legal), see ‘Google shifted $23bn to tax haven Bermuda in 2017, filing shows ’. But you can read other examples here: ‘The tech giants will never pay their fair share of taxes – unless we make them’ and ‘7 Corporate Giants Accused of Evading Billions in Taxes’.

Why does the existence of Tax Havens matter to us?

Well, the simple answer to this question is that just a fraction of the money hidden in tax havens would feed, clothe, house and provide clean water, medical care and educational opportunities to everyone on Earth. It would eliminate the 100,000 deaths by starvation-related diseases each day. It would eliminate poverty and homelessness. And, as one byproduct of having these material needs met, it would facilitate the emergence of an informed, engaged and empowered human population to tackle the vast range of environmental, climate and military threats that currently threaten biosphere collapse and imminent human extinction. See ‘Human Extinction by 2026? A Last Ditch Strategy to Fight for Human Survival’.

As Professor Prem Sikka puts it more simply: Because of the penetration by financial services executives of the British state, including the Treasury ‘It deprives people of opportunities to have healthcare, education, security, justice and, ultimately, a fulfilling life.’ See ‘The Spider’s Web: Britain’s Second Empire’.

Fundamentally, then, tax havens and their secrecy are at the heart of those elite institutions and processes that functionally undermine democracy and give extraordinary power to certain anonymous individuals and their entities without accountability. See ‘The Spider’s Web: Britain’s Second Empire’.

Of course, the elites that control the tax haven networks are not about to let this change. Tax havens are simply too important as part of the global infrastructure for maintaining elite profit, power and privilege and for resisting grassroots efforts to bring peace, justice and ecological sanity to our world. And that is why they are protected by government legislation and legal systems, with an ‘army’ of accountants, auditors, bankers, businesspeople, lawyers and politicians ensuring that they remain protected.

So don’t forget: laws are designed to control and punish you, no matter how trivial your infringement: a parking fine, a littering offence, a petty theft. But if you have enough money, the law simply does not exist. And you can evade taxes legally and in the full knowledge that your vast profits (even from immorally-acquired wealth such as sex trafficking, gun-running, endangered species trafficking, conflict diamonds and drug trafficking) are ‘lawful’ and will escape regulation and oversight of any kind. See ‘The Rule of Law: Unjust and Violent’.

Let me give a personal example. I have been a war tax resister since 1983: I have a conscientious objection to paying taxes to the Australian government to deploy military forces in other countries to kill people in my name. So, instead of paying taxes to kill, for many years I donated the equivalent amount to organizations engaged in peace, development, environment and human rights work, and to ‘pay the rent’ for my use of indigenous land. As some of many outcomes to this conscientious and highly public resistance (garnering national media attention at times), in 1991 I was bankrupted, in 1992 I was convicted of contempt of court (for my conscientious refusal to cooperate with the bankruptcy trustee) and in 1993 my passport was seized. In 1999, I was advised that I will be ‘bankrupt forever’ because of my ongoing conscientious refusal to finance the killing.

In the same period, since 1983, trillions and trillions of dollars of tax have been illegally and secretly evaded as wealthy individuals and corporations, criminals and crime syndicates, international organizations and governments channel their incomes and profits through tax havens. Laws and legal systems throughout the world make this possible and, provided it is done correctly, it is quite straightforward to avoid any penalties for secretly evading payment of taxes or hiding money acquired through criminal activity. But the point, as you can see, is that tax evasion by wealthy individuals and corporations meant that many of these individuals and corporations didn’t pay taxes to kill people either. They just didn’t pay taxes at all.

Of course, their motive was personal gain, their way was legal, they incurred no penalty and, of course, they didn’t pay an equivalent amount to support peace and justice causes. More fundamentally, however, the trillions of dollars they took from the global economy were made by killing and exploiting people and the planet in a significant variety of other ways, ranging from sex trafficking, gun-running, conflict diamonds and trafficking in drugs and endangered species, to simply starving people to death at the rate of 100,000 people each day by managing the global economy, using tax havens as a primary tool, to extract maximum profit.

Richard Brooks documents how this legal exploitation occurs in another way in his book The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business. The vast tax evasion by elites in Britain, including by diverting funds through tax havens, attracts just five prosecutions each year per £1 billion of evasion of direct taxes. In contrast, benefits fraud by those on unemployment and disability pensions attract 9,000 prosecutions each year per £1 billion of fraud. ‘So theft by the poor warrants the full force of the law’. But not theft by elites who write the law and largely control the political and legal processes in relation to it.

Hence, under the guise of ‘relationship taxing’ (that is, building a relationship between tax authorities and corporate executives and ‘tailoring’ tax payments to corporate wishes to the extent the law allows), corporations have long known that ‘If you don’t like the law… we’ll see what we can do’.

As is obvious from this example, attempts at government reform, including to defeat tax havens, in the direction of making elites financially and legally accountable, both nationally and internationally, for the responsibilities which the rest of us cannot escape, are invariably for show and, in any case, achieve zero of substance. For example, the attempt to ‘approve’ a blacklist of tax havens at the G20 gathering in 2009 was resisted by the Chinese premier on behalf of Chinese elites who, like other national elites keen to have political control but ‘judicial separation’ from their offshore centres, opposed the listing of notorious havens Hong Kong and Macau: see Treasure Islands: Tax Havens and the Men Who Stole the World. The global elite is clearly in control with national governments and international organizations powerlessly doing as instructed. So complete is this control, in fact, that Brooks notes that, in Britain, ‘Anti-tax avoidance laws had to be relaxed to accommodate companies’ tax avoidance schemes.’

Brooks concludes that ‘British taxation policy really had been so comprehensively captured by the world’s biggest corporations that screw-the-poor policies… could be written into the statute books at their whim, without a pang of conscience being felt anywhere in Whitehall.’ Clearly, however, his comment can be applied to virtually any government in the world.

So does it matter to you that these tax havens exist and do what they do?

What can be done about Tax Havens?

Authors such as Nicholas Shaxson and Richard Brooks suggest a raft of measures to correct the large number of ‘faults’ that facilitate the secrecy, protection from regulation and tax evasion that individuals, corporations, organizations, criminals and terrorists utilize in tax havens.

For Shaxson, these include financial reforms such as ‘blacklisting’ of tax havens so that their rogue state status is public knowledge; greater transparency, for example, through government sharing of information about the local income and assets of each other’s citizens and by requiring multinational corporate activities in each country to be made visible (rather than hidden behind ‘international’ figures); promoting the needs of developing countries which need their tax bases protected far more than they need aid or debt relief; confronting the British ‘spider’s web’ of tax havens by abolishing the City of London Corporation and submerging it into a unified and fully democratic London; taxing an entire multinational ‘group’ as a single unit and then allocating the appropriate amounts of its income out to the different jurisdictions in which it was earned and allow it to be taxed as each jurisdiction decides; onshore tax reform such as a land value tax (because land cannot be moved offshore and so tax on it must be paid locally), and by a direct distribution of mineral wealth in any country to each of its inhabitants (who can then be taxed); tackling the ‘enablers’ – the accountants, lawyers, individual bankers, businesspeople – and not just the clients, so that they go to jail; rethinking the meaning of ‘corporate responsibility’ (because corporations are given a wealth of capital in public infrastructure, an educated and healthy workforce… with which to work) so that corporations are transparent about their affairs and pay tax as part of their corporate responsibility; re-evaluating the meaning of corruption – insiders abusing the common good in secrecy and getting away with it and so worsening inequality and entrenching vested interests and unaccountable power – so that we see, more clearly, all of the actors and their activities; and changing the culture that fawns over people who abuse the system for personal gain. See Treasure Islands: Tax Havens and the Men Who Stole the World.

And some progress appears to be occurring along lines he suggests. For example, a version of automatic information exchange (AIE), by which governments make sure that essential information is made available to other jurisdictions as a matter of routine, has been discussed by the OECD and, while full of loopholes – see ‘Loophole USA: the vortex-shaped hole in global financial transparency’ – some commitments have been made. For the list of commitments as at November 2018, see ‘AEOI commitments’.

However, the USA has not made this commitment and while Switzerland, for example, finds this objectionable – see ‘The U.S. hasn’t signed the AEoI Agreement: Reciprocity demanded’ – the reality is that it makes little difference. For example, ICO Services, which specializes in the formation of offshore companies and offshore banking, will assist you to get around the AEoI requirement. Their website advertises that ‘asset holders need to start looking for alternative jurisdictions for protecting their assets. There are some reputable jurisdictions that are still outside the AEoI – e.g. Cyprus – but U.S. states of Delaware and some others shouldn’t be dismissed.’

But if you want a more established name to help you take advantage of a tax haven in the USA, you really can’t go past Rothschild & Co. So, to check out what they are offering: ‘Here Is Rothschild’s Primer How To Launder Money In U.S. Real Estate And Avoid “Blacklists”’.

Moreover, the AEoI agreement ‘outlaws’ bank secrecy but not trust secrecy (which dates from the Crusades) on which the British model is based – ‘The Trust lies at the core of the British secrecy model’ – so it does not address the cornerstone of British tax haven secrecy and explains why the British were happy to see the Cayman Islands commit to the AEoI. In short: the British government would be happy to kill off bank secrecy so that they can capture a larger market share (based on Trust secrecy). See ‘The Spider’s Web: Britain’s Second Empire’.

Separately from this initiative, in 2018 the UK parliament enacted a new law requiring its overseas territories – including notorious tax havens like Bermuda, the Cayman Islands and the British Virgin Islands – to start disclosing the owners of corporations they register by 2020. In theory: ‘This could shut down a huge amount of offshore tax evasion and other financial crimes because individuals from anywhere in the world, including the United States, have long been able to set up secret corporations in these tax havens to stash their money.’ See ‘New UK Law May Shut Down the Biggest Tax Havens – Aside from the U.S.’

However, while the report pointed out that the new law obviously does not impact the USA (or, of course, Switzerland or …) and the easy rerouting options available if these havens are effectively (or even actually) shut down, it failed to mention that this initiative does not in any way address the City of London Corporation so the impact of this initiative must be very limited unless it is followed by some pretty drastic initiatives in Westminster, Washington, Bern and elsewhere.

In summary, while one cannot disagree with any of Shaxson’s fine suggestions or be displeased that public pressure has led to some effort being made by the OECD and the UK parliament to address elements of the tax haven scourge, the reality is that the extent of the changes necessary are not going to happen without enormous grassroots pressure, strategically applied, and they are very unlikely to happen as reforms of the existing capitalist system. This is simply because the global elite is solidly in control of the institutions and processes of global capitalism, including its compliant governments and international organizations, and will readily stymie any attempt at serious reform of tax havenry particularly given the number of major reforms needed and the number of nations in which these reforms must be enacted. To state two obvious examples: The City of London Corporation has not existed for 1,000 years because it has no defense. And the changes noted above have only made the US more attractive as a secrecy jurisdiction.

Meanwhile, with the aim of promoting ‘financial innovation’, Switzerland has recently made things easier for smaller financial technology companies thus making tax havenry more attractive to those who might not have otherwise considered it. See ‘Swiss watchdog to propose looser anti-money laundering rules for fintechs’.

So, given that most tax havens are protected by host government legislation and there is no international mechanism to control them, the tax haven industry generally is not under threat of being held to account in any significant way.

And, despite the more elaborate explanation offered above, there is a simple reason for this. Unofficially, of course, illegal money, laundered through tax havens, has become an essential and sometimes stabilizing element of the global financial system. See ‘Drug money saved banks in global crisis, claims UN advisor’.

So what can we do that will make a difference?

Given the deeply entrenched and long-standing nature of this problem, clearly it needs to be addressed at various levels.

Fundamentally, we can nurture our children so that we do not destroy their conscience. See ‘My Promise to Children’. Remember all of those corrupt/criminal accountants, bankers, businesspeople, priests and popes, lawyers and politicians that kept creeping up in the discussion above? The people who maintain the entire infrastructure that allows tax havens to exist and those who manage and profit from it too?

Do they care about you? Do they care about the people in Africa, Asia and Central/South America who starve as a result of the types of policies that allow tax havens to exist and function? Do they care about those driven into poverty and homelessness in modern industrial economies because vast sums are drained out of them and hidden in secrecy jurisdictions? Do they care about the people killed by the military and other violence from which they profit and then hide the proceeds to evade tax? Do they care about the Earth? Fundamentally, do they care about themselves?

Of course not! But this is only because they are extraordinarily psychologically damaged individuals. See ‘The Global Elite is Insane Revisited’ with a more complete explanation in ‘Why Violence?’ and ‘Fearless Psychology and Fearful Psychology: Principles and Practice ’.

If we inflict enormous violence on a child throughout their childhood to compel their obedience, how can we expect them to grow up to lead a life of integrity based on their conscience, courage, compassion, empathy and love? Those who use tax havens are truly ‘poor little rich boys’ (and girls). See ‘Love Denied: The Psychology of Materialism, Violence and War’ and ‘Why Set Up a Shell Company in Panama? The Psychology Driving Illicit Financial Flows’.

Beyond tackling the problem at its source however, we can also tackle manifestations of the problem but not by lobbying elites – and their political agents: there are no votes in it, in any case – to control this depravity for which they are well rewarded.

For a start we can boycott all of the major private banks in favor of those smaller or member-owned banks that have a serious commitment to peace, justice and ecological sustainability, or we can seek out equivalent institutions like credit unions. We can also create public banks based on ethical principles. See ‘What are Public Banks and How Do They Operate? An Introduction’.

We can boycott large corporations – like Amazon, Apple, Gap, Google, Ikea, Microsoft and Starbucks – that use tax havens. None of these corporations is a monopoly: there are alternatives which can be investigated and employed, assuming we can’t go without some version of the product or service they offer. Whenever you can, find a locally-owned outlet that offers a local product or service.

We can boycott the Catholic Church. God does not ask that you morally or financially support a corrupt organization that doesn’t understand or represent morality and spirituality. Remember, it was Jesus who threw the moneychangers out of the temple.

If our conscience speaks loudly enough, we can decline employment by any organization that is unethical, such as those that use tax havens.

We can refuse to gamble, refuse to buy the services of a sex worker (who might even be illegally trafficked into the work), refuse to buy the products of endangered species – see, for example, ‘Killing Elephants “for Pet Food” Condemned’ – and refuse to use illicit drugs. These products and services are virtually always offered by industries controlled by criminal organizations so by buying them you are only harming yourself and/or other people or species about whom you could choose to exercise a duty of care while also not contributing to the diversion of financial resources into tax havens.

We can encourage unions, with members who work for organizations using tax havens, to take a stand on the issue.

We can support existing organizations that work on the problem, preferably those that offer grassroots alternatives. The Tax Justice Network, an ‘activist think tank’, and its sister organization, the Global Alliance for Tax Justice, campaign for systemic change.

If we are genuinely ambitious, we can develop comprehensive nonviolent strategies to compel particular individuals and organizations to desist from using tax havens or even compel countries to close down tax havens. See Nonviolent Campaign Strategy. This can easily be part of a larger strategy to transform the global economy into one that satisfies human and ecological needs, particularly given the imminence of biosphere collapse, as noted above. See ‘The Flame Tree Project to Save Life on Earth ’.

If violence and exploitation in all of their guises concern you, consider signing the online pledge of ‘The People’s Charter to Create a Nonviolent World’.

So here is a final question for you to consider: What might the world look like if all those trillions of dollars were being shared and spent where they are most needed?

Biodata: Robert J. Burrowes has a lifetime commitment to understanding and ending human violence. He has done extensive research since 1966 in an effort to understand why human beings are violent and has been a nonviolent activist since 1981. He is the author of ‘Why Violence?’ His email address is flametree@riseup.net and his website is here.

Robert J. Burrowes
P.O. Box 68
Daylesford, Victoria 3460
Australia

Email: flametree@riseup.net

Websites:
Nonviolence Charter
Flame Tree Project to Save Life on Earth
‘Why Violence?’
Feelings First
Nonviolent Campaign Strategy
Nonviolent Defense/Liberation Strategy
Anita: Songs of Nonviolence
Robert Burrowes
Global Nonviolence Network

The Pentagon’s Massive Accounting Fraud Exposed

Posted on December 11, 2018 by Reid Mukai

How US military spending keeps rising even as the Pentagon flunks its audit.

By Dave Lindorff

Source: Information Clearing House

On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job. Congress had ordered an independent audit of the Department of Defense, the government’s largest discretionary cost center—the Pentagon receives 54 cents out of every dollar in federal appropriations—after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.

Deputy Secretary of Defense Patrick Shanahan tried to put the best face on things, telling reporters, “We failed the audit, but we never expected to pass it.” Shanahan suggested that the DoD should get credit for attempting an audit, saying, “It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial.” The truth, though, is that the DoD was dragged kicking and screaming to this audit by bipartisan frustration in Congress, and the result, had this been a major corporation, likely would have been a crashed stock.

As Republican Senator Charles Grassley of Iowa, a frequent critic of the DoD’s financial practices, said on the Senate floor in September 2017, the Pentagon’s long-standing failure to conduct a proper audit reflects “twenty-six years of hard-core foot-dragging” on the part of the DoD, where “internal resistance to auditing the books runs deep.” In 1990, Congress passed the Chief Financial Officers Act, which required all departments and agencies of the federal government to develop auditable accounting systems and submit to annual audits. Since then, every department and agency has come into compliance—except the Pentagon.

Now, a Nation investigation has uncovered an explanation for the Pentagon’s foot-dragging: For decades, the DoD’s leaders and accountants have been perpetrating a gigantic, unconstitutional accounting fraud, deliberately cooking the books to mislead the Congress and drive the DoD’s budgets ever higher, regardless of military necessity. DoD has literally been making up numbers in its annual financial reports to Congress—representing trillions of dollars’ worth of seemingly nonexistent transactions—knowing that Congress would rely on those misleading reports when deciding how much money to give the DoD the following year, according to government records and interviews with current and former DoD officials, congressional sources, and independent experts.

“If the DOD were being honest, they would go to Congress and say, ‘All these proposed budgets we’ve been presenting to you are a bunch of garbage,’ ” said Jack Armstrong, who spent more than five years in the Defense Department’s Office of Inspector General as a supervisory director of audits before retiring in 2011.

The fraud works like this. When the DoD submits its annual budget requests to Congress, it sends along the prior year’s financial reports, which contain fabricated numbers. The fabricated numbers disguise the fact that the DoD does not always spend all of the money Congress allocates in a given year. However, instead of returning such unspent funds to the US Treasury, as the law requires, the Pentagon sometimes launders and shifts such moneys to other parts of the DoD’s budget.

Veteran Pentagon staffers say that this practice violates Article I Section 9 of the US Constitution, which stipulates that

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Among the laundering tactics the Pentagon uses: So-called “one-year money”—funds that Congress intends to be spent in a single fiscal year—gets shifted into a pool of five-year money. This maneuver exploits the fact that federal law does not require the return of unspent “five-year money” during that five-year allocation period.

The phony numbers are referred to inside the Pentagon as “plugs,” as in plugging a hole, said current and former officials. “Nippering,” a reference to a sharp-nosed tool used to snip off bits of wire or metal, is Pentagon slang for shifting money from its congressionally authorized purpose to a different purpose. Such nippering can be repeated multiple times “until the funds become virtually untraceable,” says one Pentagon-budgeting veteran who insisted on anonymity in order to keep his job as a lobbyist at the Pentagon.

The plugs can be staggering in size. In fiscal year 2015, for example, Congress appropriated $122 billion for the US Army. Yet DoD financial records for the Army’s 2015 budget included a whopping $6.5 trillion (yes, trillion) in plugs. Most of these plugs “lack[ed] supporting documentation,” in the bland phrasing of the department’s internal watchdog, the Office of Inspector General. In other words, there were no ledger entries or receipts to back up how that $6.5 trillion supposedly was spent. Indeed, more than 16,000 records that might reveal either the source or the destination of some of that $6.5 trillion had been “removed,” the inspector general’s office reported.

In this way, the DoD propels US military spending higher year after year, even when the country is not fighting any major wars, says Franklin “Chuck” Spinney, a former Pentagon whistle-blower. Spinney’s revelations to Congress and the news media about wildly inflated Pentagon spending helped spark public outrage in the 1980s. “They’re making up the numbers and then just asking for more money each year,” Spinney told The Nation. The funds the Pentagon has been amassing over the years through its bogus bookkeeping maneuvers “could easily be as much as $100 billion,” Spinney estimated.

Indeed, Congress appropriated a record amount—$716 billion—for the DoD in the current fiscal year of 2019. That was up $24 billion from fiscal year 2018’s $692 billion, which itself was up $6 billion from fiscal year 2017’s $686 billion. Such largesse is what drives US military spending higher than the next ten highest-spending countries combined, added Spinney. Meanwhile, the closest thing to a full-scale war the United States is currently fighting is in Afghanistan, where approximately 15,000 US troops are deployed—only 2.8 percent as many as were in Vietnam at the height of that war.

The DoD’s accounting practices appear to be an intentional effort to avoid accountability, says Armstrong. “A lot of the plugs—not all, but a substantial portion—are used to force general-ledger receipts to agree with the general budget reports, so what’s in the budget reports is basically left up to people’s imagination,” Armstrong says, adding, “Did the DoD improperly spend funds from one appropriated purpose on another? Who can tell?”

“The United States government collects trillions of dollars each year for the purpose of funding essential functions, including national-security efforts at the Defense Department,” Senator Grassley told The Nation. “When unelected bureaucrats misuse, mismanage and misallocate taxpayer funds, it not only takes resources away from vital government functions, it weakens citizens’ faith and trust in their government.”

This Pentagon accounting fraud is déjà vu all over again for Spinney. Back in the 1980s, he and a handful of other reform-minded colleagues exposed how the DoD used a similar accounting trick to inflate Pentagon spending—and to accumulate money for “off-the-books” programs. “DoD routinely over-estimated inflation rates for weapons systems,” Spinney recalled. “When actual inflation turned out to be lower than the estimates, they did not return the excess funds to the Treasury, as required by law, but slipped them into something called a ‘Merged Surplus Account,’” he said.

“In that way, the Pentagon was able to build up a slush fund of almost $50 billion” (about $120 billion in today’s money), Spinney added. He believes that similar tricks are being used today to fund secret programs, possibly including US Special Forces activity in Niger. That program appears to have been undertaken without Congress’s knowledge of its true nature, which only came to light when a Special Forces unit was ambushed there last year, resulting in the deaths of four US soldiers.

“Because of the plugs, there is no auditable way to track Pentagon funding and spending,” explains Asif Khan of the Government Accountability Office, the Congress’s watchdog on the federal bureaucracy. “It’s crucial in auditing to have a reliable financial record for prior years in order to audit the books for a current year,” notes Khan, the head of the National Security Asset Management unit at GAO. Plugs and other irregularities help explain why the Pentagon has long been at or near the top of the GAO’s list of “high risk” agencies prone to significant fraud, waste, and abuse, he adds.

The Nation submitted detailed written questions and requested interviews with senior officials in the Defense Department before publishing this article. Only public-affairs staff would speak on the record. In an e-mailed response, Christopher Sherwood of the DoD’s Public Affairs office denied any accounting impropriety. Any transfer of funds between one budgetary account and another “requires a reprogramming action” by Congress, Sherwood wrote, adding that any such transfers amounting to more than 1 percent of the official DoD budget would require approval by “all four defense congressional committees.”

The scale and workings of the Pentagon’s accounting fraud began to be ferreted out last year by a dogged research team led by Mark Skidmore, a professor of economics specializing in state and local government finance at Michigan State University. Skidmore and two graduate students spent months poring over DoD financial statement reviews done by the department’s Office of Inspector General. Digging deep into the OIG’s report on the Army’s 2015 financial statement, the researchers found some peculiar information. Appendix C, page 27, reported that Congress had appropriated $122 billion for the US Army that year. But the appendix also seems to report that the Army had received a cash deposit from the US Treasury of $794.8 billion. That sum was more than six times larger than Congress had appropriated—indeed, it was larger than the entire Pentagon budget for the year. The same appendix showed that the Army had accounts payable (accounting lingo for bills due) totaling $929.3 billion.

“I wondered how you could possibly get those kinds of adjustments out of a $122 billion budget,” Skidmore recalled. “I thought, initially, ‘This is absurd!’ And yet all the [Office of Inspector General] seemed to do was say, ‘Here are these plugs.’ Then, nothing. Even though this kind of thing should be a red flag, it just died. So we decided to look further into it.”

To make sure that fiscal year 2015 was not an anomaly, Skidmore and his graduate students expanded their inquiry, examining OIG reports on Pentagon financial records stretching back to 1998. Time and again, they found that the amounts of money reported as having flowed into and out of the Defense Department were gargantuan, often dwarfing the amounts Congress had appropriated: $1.7 trillion in 1998, $2.3 trillion in 1999, $1.1 trillion in 2000, $1.1 trillion in 2007, $875 billion in 2010, and $1.7 trillion in 2012, plus amounts in the hundreds of billions in other years.

In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore. To convey the vastness of that sum, $21 trillion is roughly five times more than the entire federal government spends in a year. It is greater than the US Gross National Product, the world’s largest at an estimated $18.8 trillion. And that $21 trillion includes only plugs that were disclosed in reports by the Office of Inspector General, which does not review all of the Pentagon’s spending.

To be clear, Skidmore, in a report coauthored with Catherine Austin Fitts, a former assistant secretary of the Department of Housing and Urban Development who complained about similar plugs in HUD financial statements, does not contend that all of this $21 trillion was secret or misused funding. And indeed, the plugs are found on both the positive and the negative sides of the ledger, thus potentially netting each other out. But the Pentagon’s bookkeeping is so obtuse, Skidmore and Fitts added, that it is impossible to trace the actual sources and destinations of the $21 trillion. The disappearance of thousands of records adds further uncertainty. The upshot is that no one can know for sure how much of that $21 trillion was, or was not, being spent legitimately.

That may even apply to the Pentagon’s senior leadership. A good example of this was Donald Rumsfeld, the notorious micromanaging secretary of defense during the Bush/Cheney administration. On September 10, 2001 Rumsfeld called a dramatic press conference at the Pentagon to make a startling announcement. Referring to the huge military budget that was his official responsibility, he said, “According to some estimates we cannot track $2.3 trillion in transactions.” This shocking news that an amount more than five times as large as the Pentagon’s FY 2001 budget of an estimated $313 billion was lost or even just “untrackable” was—at least for one 24-hour news cycle—a big national story, as was Secretary Rumsfeld’s comment that America’s adversary was not China or Russia, but rather was “closer to home: It’s the Pentagon bureaucracy.” Equally stunning was Rumsfeld’s warning that the tracking down of those missing transactions “could be…a matter of life and death.” No Pentagon leader had ever before said such a thing, nor has anyone done so since then. But Rumsfeld’s exposé died quickly as, the following morning on September 11, four hijacked commercial jet planes plowed full speed into the two World Trade Center towers, the Pentagon, and a field in Pennsylvania. Since that time, there has been no follow-up and no effort made to find the missing money, either.

Recalling his decades inside the Pentagon, Spinney emphasized that the slippery bookkeeping and resulting fraudulent financial statements are not a result of lazy DoD accountants. “You can’t look at this as an aberration,” he said. “It’s business as usual. The goal is to paralyze Congress.”

That has certainly been the effect. As one congressional staffer with long experience investigating Pentagon budgets, speaking on background because of the need to continue working with DoD officials, told The Nation, “We don’t know how the Pentagon’s money is being spent. We know what the total appropriated funding is for each year, but we don’t know how much of that funding gets spent on the intended programs, what things actually cost, whether payments are going to the proper accounts. If this kind of stuff were happening in the private sector, people would be fired and prosecuted.”

DoD officials have long insisted that their accounting and financial practices are proper. For example, the Office of Inspector General has attempted to explain away the absurdly huge plugs in DoD’s financial statements as being a common, widely accepted accounting practice in the private sector.

When this reporter asked Bridget Serchak, at the time a press spokesperson for the inspector general’s office, about the Army’s $6.5 trillion in plugs for fiscal year 2015, she replied, “Adjustments are made to the Army General Fund financial statement data…for various reasons such as correcting errors, reclassifying amounts and reconciling balances between systems…. For example, there was a net unsupported adjustment of $99.8 billion made to the $0.2 billion balance reported for Accounts Receivable.”

There is a grain of truth in Serchak’s explanation, but only a grain.

As an expert in government budgeting, Skidmore confirmed that it is accepted practice to insert adjustments into budget reports to make both sides of a ledger agree. Such adjustments can be deployed in cases where receipts have been lost—in a fire, for example—or where funds were incorrectly classified as belonging to one division within a company rather than another. “But those kinds of adjustments should be the exception, not the rule, and should amount to only a small percentage of the overall budget,” Skidmore said.

For its part, the inspector general’s office has blamed the fake numbers found in many DoD financial statements on the Defense Finance and Accounting Service (DFAS), a huge DoD accounting operation based in Indianapolis, Indiana. In review after review, the inspector general’s office has charged that DFAS has been making up “unsupported” figures to plug into DoD’s financial statements, inventing ledger entries to back up those invented numbers, and sometimes even “removing” transaction records that could document such entries. Nevertheless, the inspector general has never advocated punitive steps against DFAS officials—a failure that suggests DoD higher-ups tacitly approve of the deceptions.

Skidmore repeatedly requested explanations for these bookkeeping practices, he says, but the Pentagon response was stonewalling and concealment. Even the inspector general’s office, whose publicly available reports had been criticizing these practices for years, refused to answer the professor’s questions. Instead, that office began removing archived reports from its website. (Skidmore and his grad students, anticipating that possibility, had already downloaded the documents, which were eventually were restored to public access under different URLs.)

Nation inquiries have met with similar resistance. Case in point: A recent DoD OIG report on a US Navy financial statement for FY 2017. Although OIG audit reports in previous years were always made available online without restriction or censorship, this particular report suddenly appeared in heavily redacted form—not just the numbers it contained, but even its title! Only bureaucratic sloppiness enabled one to see that the report concerned Navy finances: Censors missed some of the references to the Navy in the body of the report, as shown in the passages reproduced here.

A request to the Office of Inspector General to have the document uncensored was met with the response: “It was the Navy’s decision to censor it, and we can’t do anything about that.” At The Nation’s request, Senator Grassley’s office also asked the OIG to uncensor the report. Again, the OIG refused. A Freedom Of Information Act request by The Nation to obtain the uncensored document awaits a response.

The GAO’s Khan was not surprised by the failure of this year’s independent audit of the Pentagon. Success, he points out, would have required “a good-faith effort from DoD officials, but to date that has not been forthcoming.” He added, “As a result of partial audits that were done in 2016, the Army, Navy, Air Force, and Marines have over 1,000 findings from auditors about things requiring remediation. The partial audits of the 2017 budget were pretty much a repeat. So far, hardly anything has been fixed.”

Let that sink in for a moment: As things stand, no one knows for sure how the biggest single-line item in the US federal budget is actually being spent. What’s more, Congress as a whole has shown little interest in investigating this epic scandal. The absurdly huge plugs never even get asked about at Armed Services and Budget Committee hearings.

One interested party has taken action—but it is action that’s likely to perpetuate the fraud. The normally obscure Federal Accounting Standards Advisory Board sets the accounting standards for all federal agencies. Earlier this year, the board proposed a new guideline saying that agencies that operate classified programs should be permitted to falsify figures in financial statements and shift the accounting of funds to conceal the agency’s classified operations. (No government agency operates more classified programs than the Department of Defense, which includes the National Security Agency.) The new guideline became effective on October 4, just in time for this year’s end-of-year financial statements.

So here’s the situation: We have a Pentagon budget that a former DOD internal-audit supervisor, Jack Armstrong, bluntly labels “garbage.” We have a Congress unable to evaluate each new fiscal year’s proposed Pentagon budget because it cannot know how much money was actually spent during prior years. And we have a Department of Defense that gives only lip service to fixing any of this. Why should it? The status quo has been generating ever-higher DoD budgets for decades, not to mention bigger profits for Boeing, Lockheed, and other military contractors.

The losers in this situation are everyone else. The Pentagon’s accounting fraud diverts many billions of dollars that could be devoted to other national needs: health care, education, job creation, climate action, infrastructure modernization, and more. Indeed, the Pentagon’s accounting fraud amounts to theft on a grand scale—theft not only from America’s taxpayers, but also from the nation’s well-being and its future.

As President Dwight D. Eisenhower, who retired from the military as a five-star general after leading Allied forces to victory in World War II, said in a 1953 speech, “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” What would Eisenhower say today about a Pentagon that deliberately misleads the people’s representatives in Congress in order to grab more money for itself while hunger, want, climate breakdown, and other ills increasingly afflict the nation?

The Wealth Hiding in Your Neighborhood

Posted on November 21, 2018 by Reid Mukai

From country farmland to big city skyscrapers, absentee billionaires may be hiding wealth in your town — and driving up your cost of living.

By Chuck Collins

Source: OtherWords

The rich are hiding trillions in wealth.

You’ve probably heard about their offshore bank accounts, shell corporations, and fancy trusts. But this wealth isn’t all sitting in the Cayman Islands or Panama. Much of it’s hiding in plain view: maybe even in your town.

America’s big cities are increasingly dotted with luxury skyscrapers and mansions. These multi-million dollar condos are wealth storage lockers, with the ownership often obscured by shell companies.

In Boston, where I live, there’s a luxury building boom. According to a study I just co-authored, out of 1,805 luxury units — with an average price of over $3 million — more than two-thirds are owned by people who don’t live here.

One-third are owned by shell companies and trusts that mask their ownership. And of these units, 40 percent are limited liability companies (LLCs) organized in Delaware.

Why Delaware?

Criminals around the world set up their shell companies in Delaware, the premiere secrecy jurisdiction in the United States — where you don’t have to disclose who the real owners are. As a result, human traffickers, drug smugglers, and tax evaders all enjoy the anonymous cover of a Delaware company.

Many of these companies use illicit funds to purchase real estate in North American cities to launder their ill-gotten money.

In New York City, dozens of luxury towers have been connected to global money laundering. In Vancouver, Chinese investors disrupted the city’s housing market so badly that the province of British Columbia established a foreign investor tax and a tax on vacant properties.

With European countries now insisting on more transparency, illicit cash is now cascading into the United States. In fact, the U.S. is now the world’s second-biggest tax haven and secrecy jurisdiction, after Switzerland.

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has increased its scrutiny over real estate markets in Miami, New York, and parts of California, Texas, and Hawaii.

But that just makes the rest of the country more attractive for secret cash — even far from big cities. In a small Vermont town, I met a Russian investor who lives in Dubai. He was buying up thousands of acres of Green Mountain farmland.

Our communities are being fundamentally transformed by land grabs and luxury building booms. These drive up the cost of land in central neighborhoods, with ripple impacts throughout a community. And this worsens the already grotesque inequalities of income, wealth, and opportunity.

Our communities should defend themselves.

Property ownership should have to pass the “fishing license” or “library card” test. In most communities, to get a library card or a fishing license, you need to prove who you are and where you actually live.

In Boston, they’re pretty strict — you need to show a utility bill with your name on it. Cities should require the same for real estate purchases.

At a national level, bi-partisan legislation from Senators Marco Rubio and Sheldon Whitehouse would require real estate owners to be disclosed when buyers use shell corporations and pay millions in cash. That would be a welcome development.

Better still, cities should tax luxury real estate transactions on properties selling for over $2 million to fund local services. Such a tax in San Francisco generated $44 million last year that’s been used to fund free community college and help the city’s neglected trees.

Communities could discourage high-end vacant properties by taxing buildings that sit empty for more than six months a year. Cities like Vancouver have created incentives to house people, not wealth.

We need to defend our communities for the people who live in them, not just store their wealth there.

Neoliberalism and The Globalization of War: America’s Hegemonic Project

Posted on December 28, 2016 by Reid Mukai

By Prof Michel Chossudovsky

Source: GlobalResearch.ca

The world is at a dangerous crossroads. The United States and its allies have launched a military adventure which threatens the future of humanity. Major military and covert intelligence operations are being undertaken simultaneously in the Middle East, Eastern Europe, sub-Saharan Africa, Central Asia and the Far East. The US-NATO military agenda combines both major theater operations as well as covert actions geared towards destabilizing sovereign states.

America’s hegemonic project is to destabilize and destroy countries through acts of war, covert operations in support of terrorist organizations, regime change and economic warfare. The latter includes the imposition of deadly macro-economic reforms on indebted countries as well the manipulation of financial markets, the engineered collapse of national currencies, the privatization of State property, the imposition of economic sanctions, the triggering of inflation and black markets.

The economic dimensions of this military agenda must be clearly understood. War and Globalization are intimately related. These military and intelligence operations are implemented alongside a process of economic and political destabilization targeting specific countries in all major regions of World.

Neoliberalism is an integral part of this foreign policy agenda. It constitutes an all encompassing mechanism of economic destabilization. Since the 1997 Asian crisis, the IMF-World Bank structural adjustment program (SAP) has evolved towards a broader framework which consists in ultimately undermining national governments’ ability to formulate and implement national economic and social policies.

In turn, the demise of national sovereignty was also facilitated by the instatement of the World Trade Organization (WTO) in 1995, evolving towards the global trading agreements (TTIP and TPP) which (if adopted) would essentially transfer state policy entirely into the hands of corporations. In recent years, neoliberalism has extend its grip from the so-called developing countries to the developed countries of both Eastern and Western Europe. Bankruptcy programs have been set in motion. Island, Portugal, Greece, Ireland, etc, have been the target of sweeping austerity measures coupled with the privatization of key sectors of the national economy.

The global economic crisis is intimately related to America’s hegemonic agenda. In the US and the EU, a spiralling defense budget backlashes on the civilian sectors of economic activity. “War is Good for Business”: the powerful financial groups which routinely manipulate stock markets, currency and commodity markets, are also promoting the continuation and escalation of the Middle East war. A worldwide process of impoverishment is an integral part of the New World Order agenda.

Beyond the Globalization of Poverty

Historically, impoverishment of large sectors of the World population has been engineered through the imposition of IMF-style macro-economic reforms. Yet, in the course of the last 15 years, a new destructive phase has been set in motion. The World has moved beyond the “globalization of poverty”: countries are transformed in open territories,

State institutions collapse, schools and hospitals are closed down, the legal system disintegrates, borders are redefined, broad sectors of economic activity including agriculture and manufacturing are precipitated into bankruptcy, all of which ultimately leads to a process of social collapse, exclusion and destruction of human life including the outbreak of famines, the displacement of entire populations (refugee crisis).

This “second stage” goes beyond the process of impoverishment instigated in the early 1980s by creditors and international financial institutions. In this regard, mass poverty resulting from macro-economic reform sets the stage of a process of outright destruction of human life.

In turn, under conditions of widespread unemployment, the costs of labor in developing countries has plummeted. The driving force of the global economy is luxury consumption and the weapons industry.

The New World Order

Broadly speaking, the main corporate actors of the New World Order are

• Wall Street and the Western banking conglomerates including its offshore money laundering facilities, tax havens, hedge funds and secret accounts,

• the Military Industrial Complex regrouping major “defense contractors”, security and mercenary companies, intelligence outfits, on contract to the Pentagon;

• the Anglo-American Oil and Energy Giants,

• The Biotech Conglomerates, which increasingly control agriculture and the food chain;

• Big Pharma,

• The Communication Giants and Media conglomerates, which constitute the propaganda arm of the New World Order.

There is of course overlap, between Big Pharma and the Weapons industry, the oil conglomerates and Wall Street, etc.

These various corporate entities interact with government bodies, international financial institutions, US intelligence. The state structure has evolved towards what Peter Dale Scott calls the “Deep State”, integrated by covert intelligence bodies, think tanks, secret councils and consultative bodies, where important New World Order decisions are ultimately reached on behalf of powerful corporate interests.

In turn, intelligence operatives increasingly permeate the United Nations including its specialized agencies, nongovernmental organizations, trade unions, political parties.

What this means is that the executive and legislature constitute a smokescreen, a mechanism for providing political legitimacy to decisions taken by the corporate establishment behind closed doors.

Media Propaganda

The corporate media, which constitutes the propaganda arm of the New World Order, has a long history whereby intelligence ops oversee the news chain. In turn, the corporate media serves the useful purpose of obfuscating war crimes, of presenting a humanitarian narrative which upholds the legitimacy of politicians in high office.

Acts of war and economic destabilization are granted legitimacy. War is presented as a peace-keeping undertaking.

Both the global economy as well as the political fabric of Western capitalism have become criminalized. The judicial apparatus at a national level as well the various international human rights tribunals and criminal courts serve the useful function of upholding the legitimacy of US-NATO led wars and human rights violations.

Destabilizing Competing Poles of Capitalist Development

There are of course significant divisions and capitalist rivalry within the corporate establishment. In the post Cold War era, the US hegemonic project consists in destabilizing competing poles of capitalist development including China, Russia and Iran as well as countries such as India, Brazil and Argentina.

In recent developments, the US has also exerted pressure on the capitalist structures of the member states of the European Union. Washington exerts influence in the election of heads of State including Germany and France, which are increasingly aligned with Washington.

The monetary dimensions are crucial. The international financial system established under Bretton Woods prevails. The global financial apparatus is dollarized. The powers of money creation are used as a mechanism to appropriate real economy assets. Speculative financial trade has become an instrument of enrichment at the expense of the real economy. Excess corporate profits and multibillion dollar speculative earnings (deposited in tax free corporate charities) are also recycled towards the corporate control of politicians, civil society organizations, not to mention scientists and intellectuals. It’s called corruption, co-optation, fraud.

Latin America: The Transition towards a “Democratic Dictatorship”

In Latin America, the military dictatorships of the 1960s and 1970s have in large part been replaced by US proxy regimes, i.e. a democratic dictatorship has been installed which ensures continuity. At the same time the ruling elites in Latin America have remoulded. They have become increasingly integrated into the logic of global capitalism, requiring an acceptance of the US hegemonic project.

Macro-economic reform has been conducive to the impoverishment of the entire Latin america region.

In the course of the last 40 years, impoverishment has been triggered by hyperinflation, starting with the 1973 military coup in Chile and the devastating reforms of the 1980s and early 1990s.

The implementation of these deadly economic reforms including sweeping privatization, trade deregulation, etc. is coordinated in liaison with US intelligence ops, including the “Dirty war” and Operation Condor, the Contra insurrection in Nicaragua, etc.

The development of a new and privileged elite integrated into the structures of Western investment and consumerism has emerged. Regime change has been launched against a number of Latin American countries.

Any attempt to introduce reforms which departs from the neoliberal consensus is the object of “dirty tricks” including acts of infiltration, smear campaigns, political assassinations, interference in national elections and covert operations to foment social divisions. This process inevitably requires corruption and cooptation at the highest levels of government as well as within the corporate and financial establishment. In some countries of the region it hinges on the criminalization of the state, the legitimacy of money laundering and the protection of the drug trade.

The above text is an English summary of Prof. Michel Chossudovsky’s Presentation, National Autonomous University of Nicaragua, May 17, 2016. This presentation took place following the granting of a Doctor Honoris Causa in Humanities to Professor Chossudovsky by the National Autonomous University of Nicaragua (UNAN)

Bank Crimes Pay: Under the Thumb of the Global Financial Mafiocracy

Posted on December 7, 2015 by Reid Mukai

By Andrew Gavin Marshall

Source: Occupy.com

On Nov. 13, the United Kingdom’s Serious Fraud Office (SFO) announced it was charging 10 individual bankers, working for two separate banks, Deutsche Bank and Barclays, with fraud over their rigging of the Euribor rates. The latest announcement shines the spotlight once again on the scandals and criminal behavior that have come to define the world of global banking.

To date, only a handful of the world’s largest banks have been repeatedly investigated, charged, fined or settled in relation to a succession of large financial scams, starting with mortgage fraud and the Libor scandal in 2012, the Euribor scandal and the Forex (foreign exchange) rate rigging. At the heart of these scandals, which involve the manipulation of interest rates on trillions of dollars in transactions, lie a handful of banks that collectively form a cartel in control of global financial markets – and the source of worldwide economic and financial crises.

Banks such as HSBC, JPMorgan Chase, Barclays, Bank of America, Citigroup, Deutsche Bank, Royal Bank of Scotland and UBS anchor the global financial power we have come to recognize as fraud. The two, after all, are not mutually exclusive. In more explicit terms, this cartel of banks functions as a type of global financial Mafia, manipulating markets and defrauding investors, consumers and countries while demanding their pound of flesh in the form of interest payments. The banks force nations to impose austerity measures and structural reforms under the threat of cutting off funding; meanwhile they launder drug money for other cartels and organized crime syndicates.

Call them the global Mafiocracy.

In May, six major global banks were fined nearly $6 billion for manipulation of the foreign exchange market, which handles over $5 trillion in daily transactions. Four of the six banks pleaded guilty to charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged.” Those banks were Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland, while two additional banks, UBS and Bank of America, were fined but did not plead guilty to the specific charges. Forex traders at Citigroup, JPMorgan Chase and other banks conspired to manipulate currency prices through chat room groups they established, where they arrogantly used names like “The Mafia” and “The Cartel.”

The FBI said the investigations and charges against the big banks revealed criminal behavior “on a massive scale.” The British bank Barclays paid the largest individual fine at around $2.3 billion. But as one trader at the bank wrote in a chat room conversation back in 2010, “If you aint cheating, you aint trying.” The total fines, while numerically large, were but a small fraction of the overall market capitalization of each bank – though the fine on Barclays amounted to some 3.4% of the bank’s market capitalization, the highest percentage by far among the group.

Despite the criminal conspiracy charges covering the years 2007 through 2013, the banks and their top officials continue to lay the blame squarely at the feet of individual traders. Axel Weber, the former president of the German Bundesbank (the central bank of Germany), who is now chairman of Switzerland’s largest bank, UBS, commented that “the conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions.”

Looking at the larger scale of bank fines and fraud in the roughly eight years since the global financial crisis, the numbers increase substantially. In addition to a 2012 settlement for mortgage-related fraud in the U.S. housing market, which amounted to some $25 billion, several large banks paid individual fines related to mortgage and foreclosure fraud – including a $16 billion fine for Bank of America, and $13 billion for JPMorgan Chase. Added to these are fines related to the rigging of the Libor rate (the interest rate at which banks lend to each other) and the Forex rigging, as well as money laundering, violating sanctions, manipulating the price of gold, manipulating the U.S. electricity market and assisting tax evasion, among other crimes.

According to a research paper published in June, the total cost of litigation (fines, penalties, settlements, etc.) paid by 16 major global banks since 2010 has reached more than $300 billion. Bank of America paid the most, amounting to more than $66 billion, followed by JPMorgan Chase, Lloyds, Citigroup, Barclays, RBS, Deutsche Bank, HSBC, BNP Paribas, Santander, Goldman Sachs, Credit Suisse, UBS, National Australia Bank, Standard Chartered and Société Générale.

Virtually all of these banks also appear on a list of data, compiled through 2007, revealing them to be among the most interconnected and powerful financial institutions in the world. This core group of corporations forms part of a network of 147 financial institutions that Swiss scientists refer to as the “super-entity,” which, through their various shareholdings, collectively controland own each other and roughly 40% of the world’s 43,000 largest transnational corporations.

In other words, the big banks – along with large insurance companies and asset management firms – do not simply act as a cartel in terms of engaging in criminal activities, but they form a functionally interdependent network of global financial and corporate control. Further, the banks work together in various industry associations and lobbying groups where they officially represent their collective interests.

The largest European banks and financial institutions are represented by the European Financial Services Round Table (EFR), whose membership consists of the CEOs or Chairmen of roughly 25 of the top financial institutions on the continent, including Deutsche Bank, AXA, HSBC, Allianz, RBS, ING, Barclays, BNP Paribas, UBS, and Credit Suisse, among others.

In the United States, the Financial Services Forum (FSF) represents the largest American along with some European banks and financial institutions. The Forum’s membership consists of less than 20 executives, including the CEOs or Chairmen of such firms as Bank of America, Morgan Stanley, JPMorgan Chase, Goldman Sachs, Citigroup, UBS, HSBC, AIG, Bank of New York Mellon, State Street Corporation, Deutsche Bank and Wells Fargo, among others.

And on a truly global scale, there is the Institute of International Finance (IIF), the premier global association representing the financial industry, with a membership of nearly 500 different institutions from more than 70 countries around the world, including banks, insurance companies, asset management firms, sovereign wealth funds, central banks, credit ratings agencies, hedge funds and development banks.

In addition to these various groups and associations, many of the same large banks and their top executives also serve as members, leaders or participants in much more secretive groups and forums – for example, the International Monetary Conference (IMC), a yearly meeting of hundreds of the world’s top bankers hosted by the American Bankers Association, which invites selected politicians, central bankers and finance ministers to attend their off-the-record discussions. In addition, there is the Institut International d’Etudes Bancaires (International Institute of Banking Studies), or IIEB, which brings together the top officials from dozens of Europe’s major financial institutions for discussions with central bankers, presidents and prime ministers in “closed sessions” with virtually no coverage in the media.

These financial institutions are major owners of government debt, which gives them even greater leverage over the policies and priorities of governments. Exercising this power, they typically demand the same thing: austerity measures and “structural reforms” designed to advance a neoliberal market economy that ultimately benefits those same banks and corporations. The banks in turn create the very crises that require governments to bail them out, racking up large debts that banks turn into further crises, pressuring economic reforms in return for further loans. The cycle of crisis and control continues, and all the while, the big banks and financial institutions engage in criminal conspiracies, fraud, manipulation and money-laundering on a massive scale, including acting as the financial services arm of the world’s largest drug cartels and terrorists organizations.

Welcome to the world governed by the global financial Mafiocracy – because if you’re not concerned, you’re not paying attention.

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