US ‘incompetence’ at fault for Brockman
The Government claims a report by US lawmakers which branded Bermuda a “well-known tax haven” where the wealthy can hide money from tax authorities by using “shell banks” was “inaccurate” — but did not say if it had taken steps to have it corrected.
A spokeswoman claimed Bermuda’s prominent role in the investigative report by the US Senate Finance Committee — which focused on how Texan billionaire Robert Brockman allegedly concealed $2.7 billion in income from the Internal Revenue Service using a “complex structure involving offshore foreign trusts, foreign and domestic shell companies, nominees and foreign bank accounts” — was based on a misunderstanding.
But she did not respond to a question on what the Government had done to clear up the alleged confusion since the report was published last August.
Meanwhile, Bob Richards, a former minister of finance, said the report merely highlighted the “incompetence” of the IRS.
“The problem is that when somebody beats the IRS or [UK] Inland Revenue, the big countries default to blaming the micro-offshore jurisdiction, instead of themselves,” he said. “That’s why Bermuda is mentioned in a negative context.”
Mr Richards said the so-called “shell banks” which the committee found could be used to hide income earned by US citizens from tax authorities were “not banks, nor are they financial institutions under Bermuda law. They are holding companies. The fault is the IRS enabling them to call themselves banks under the US tax code.”
He added: “Bermuda has always known who the beneficial owners of companies are. Nominee names and companies haven’t been able to hide true beneficial owners since the 1940s.”
Mr Richards said: “Somehow, holding companies in Bermuda are nefarious ‘shell banks’, but holding companies in Delaware, where one can hide beneficial ownership, are OK.”
The report — called The Shell Bank Loophole — identified a flaw in America’s enforcement of its own Foreign Account Tax Compliance Act, which enables wealthy US “tax cheats to hide income offshore” by setting up shell companies in countries, including Bermuda, and registering them with the IRS as “foreign financial institutions”.
The committee said that in following this “shockingly easy” process, shell companies could become IRS-approved “shell banks”.
Bank accounts could then be opened for those purported FFIs and — because they are believed to be non-US financial institutions — the banks do not have to identify and report certain information about the accounts to the US authorities.
“The illicit use of these ‘shell banks’ significantly hinders visibility into offshore accounts secretly held by US persons,” concluded the committee.
The report said: “The committee’s investigation focused on a provision in the US-Switzerland FATCA intergovernmental agreement that waives obligations for Swiss banks to conduct affirmative due diligence to identify and report accounts owned by US persons, regardless of the size of those accounts.
“There are similar loopholes in FATCA agreements the United States has signed with well-known tax-haven jurisdictions central to Brockman’s scheme, including Bermuda, the British Virgin Islands, the Cayman Islands and St Kitts & Nevis."
It went on: “Brockman and his associates exploited the ‘shell bank’ loophole to substantial effect in carrying out their alleged tax evasion scheme.”
The committee, chaired by Oregon senator Ron Wyden, reported that in 2022 there were 4,177 Bermuda entities registered with the IRS as FFIs, including Point Investments Ltd, one of the companies alleged by prosecutors to have been used by Mr Brockman to hide income.
There were 84,713 FFIs in Cayman and 15,218 in BVI. The report said: “The IRS simply does not have the personnel or the capabilities to adequately monitor whether these offshore entities are properly identifying and reporting accounts belonging to US persons.”
Mr Brockman was charged with 39 criminal offences, including tax evasion, failure to file foreign bank account reports and money laundering, but died last year before he could stand trial.
The indictment against him alleged he controlled Point Investments, incorporated in Bermuda in 2009, and used it to invest in private equity funds managed by a US firm called Vista Equity Partners.
The Senate committee report, quoting the indictment, said: “ … Brockman directed billions of dollars in untaxed capital gains income earned as a result of his investments in private equity funds managed by Vista to undeclared bank accounts in Bermuda and Switzerland over the course of two decades.
“The allegations against Brockman represent the largest tax evasion case brought against an individual in US history.”
The Senate report contained a “cheat sheet” on “how to turn your shell company into an IRS approved shell bank”, the first step of which was to “establish a shell company in a FATCA partner jurisdiction (even those in well-known tax-haven jurisdictions such as Bermuda or the British Virgin Islands)”.
The Government of Bermuda spokeswoman noted that the island signed a treaty in line with FATCA in 2013, which required financial institutions here to report direct to the IRS annually on US taxpayers who hold accounts with them.
She claimed the US Senate Finance Committee appeared to have “misunderstood Bermuda’s framework and included Bermuda in the ... report referencing countries with weak or ineffective FATCA regimes. This is inaccurate.
“Instead, Bermuda is one of the few countries that have given the IRS direct access and assistance to enable the IRS to implement FATCA USA law on Bermuda entities.”
She said it was the “remit of the IRS to fix the IRS FATCA law to close any perceived loopholes in it”.
The spokeswoman added: “ ... we are pleased to see the committee chair is to support providing the IRS with more resources, plus the committee chair will advance appropriate ‘closing of loophole’ legislative amendments to the USA’s FATCA law, which is a law that itself takes account of the Financial Action Task Force international standard on beneficial ownership.”
Mr Richards, who was finance minister in the former One Bermuda Alliance administration when the FATCA treaty was signed, noted that Mr Brockman’s alleged scheme predated the agreement, “so the barn door was closed well after the horse had already escaped”.
He added: “It’s easy to get mislead to think that, somehow, it’s Bermuda’s fault that the US doesn’t collect taxes from its billionaires.
“The facts do not support this narrative. Just like in the Brockman case, the fault is with the IRS’s incompetence.
“Bermuda’s data on beneficial ownership is some of the oldest and highest quality in the world and we’re one of the most co-operative jurisdictions in the world.”
US Consul-General Karen Grissette did not respond to a request for comment by press time.
• To read The Shell Bank Loophole, see “Related Media”
