An investigative report, produced by an NGO concerned with tax fairness, reminds us to check out our corporate bank clients, which are domiciled in tax haven jurisdictions, lest we discover, from a law enforcement subpoena, that the beneficial owner of the corporation was a publicly-traded US company that is engaged in grey-area activities, which actually violate the tax and securities laws. After your compliance department reads this, they may finally wake up to the fact that banks must absolutely know who owns their corporate clients.
A number of American publicly-traded corporations, which have, as you well know, the best tax attorneys that money can buy, are engaged in a specific course of conduct, to avoid/evade taxes, and to hide the companies' activities, when it should have been reported to the Securities & Exchange Commission, and/or the IRS.
Here's how it works:
(1) The corporation forms foreign subsidiaries in all the best tax havens: Luxembourg, Panama, BVI, Cayman Islands, Cyprus, Gibraltar, Hong Kong, among others. Many of these companies have names that do NOT give the reader any hint that they are subs of major US companies. These companies hold profits earned in low- or no-tax jurisdictions, or jurisdictions where they can obtain special tax treatment, or are effectively transferred to tax havens, to avoid taxes where they are actually earned.
(2) These companies are NOT reported to the Securities & Exchange Commission on annual filings, notwithstanding that an election has been made to disregard them for US income tax purposes, which may not be proper, or legal, and should be investigated.
(3) These tax haven companies then open accounts in US banks, where they deposit cash, as well as financial instruments. They are often only shells, with neither employees, nor actually commercial operation.
(4) The anonymous tax haven companies lend money to the onshore-US parent, which is a clever way of evading the repatriation tax required to be paid when overseas profits are returned to the United States. The Internal Revenue Service may choose to disagree with this tactic.
Know your corporate customer; this means demanding, and obtaining, up front, documentary proof of the identity of the beneficial owner of the company, and I do not mean the name of some foreign law firm on a power of attorney.To do otherwise means that you might end up in the middle of some messy tax or SEC matter, involving your client, resulting in some reputation damage, when the public reads that you banked a dozen tax haven corporations, without ever learning that the beneficial owner actually was one of America's largest corporations, and one who paid only a microscopic amount of taxes, due to the use of those tax haven companies, all of which had millions in your bank.