S. Hrg. 107–152 WHAT IS THE U.S. POSITION ON OFFSHORE TAX HAVENS? HEARING BEFORE THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED SEVENTH CONGRESS FIRST SESSION JULY 18, 2001 Printed for the use of the Committee on Governmental Affairs ( U.S. GOVERNMENT PRINTING OFFICE 75–473 DTP WASHINGTON : 2001 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 11-MAY-2000 12:59 Dec 04, 2001 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 75473.TXT SAFFAIRS PsN: SAFFAIRS COMMITTEE ON GOVERNMENTAL AFFAIRS JOSEPH I. LIEBERMAN, Connecticut, Chairman CARL LEVIN, Michigan FRED THOMPSON, Tennessee DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska RICHARD J. DURBIN, Illinois SUSAN M. COLLINS, Maine ROBERT G. TORRICELLI, New Jersey GEORGE V. VOINOVICH, Ohio MAX CLELAND, Georgia PETE V. DOMENICI, New Mexico THOMAS R. CARPER, Delaware THAD COCHRAN, Mississippi JEAN CARNAHAN, Missouri ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota JIM BUNNING, Kentucky JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel HANNAH S. SISTARE, Minority Staff Director and Counsel DARLA D. CASSELL, Chief Clerk PERMANENT SUBCOMMITTEE ON INVESTIGATIONS CARL LEVIN, Michigan, Chairman DANIEL K. AKAKA, Hawaii SUSAN M. COLLINS, Maine RICHARD J. DURBIN, Illinois TED STEVENS, Alaska ROBERT G. TORRICELLI, New Jersey GEORGE V. VOINOVICH, Ohio MAX CLELAND, Georgia PETE V. DOMENICI, New Mexico THOMAS R. CARPER, Delaware THAD COCHRAN, Mississippi JEAN CARNAHAN, Missouri ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota JIM BUNNING, Kentucky LINDA J. GUSTITUS, Chief Counsel and Staff Director CHRISTOPHER A. FORD, Minority Chief Counsel and Staff Director ELISE J. BEAN, Deputy Chief Counsel MARY D. ROBERTSON, Chief Clerk (II) VerDate 11-MAY-2000 12:59 Dec 04, 2001 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 75473.TXT SAFFAIRS PsN: SAFFAIRS C O N T E N T S Opening statements: Page Senator Levin .................................................................................................... 1 Senator Collins ................................................................................................. 5 Senator Carper ................................................................................................. 7 WITNESSES WEDNESDAY, JULY 18, 2001 Hon. Paul H. O’Neill, Secretary of the U.S. Treasury .......................................... 8 Hon. Robert M. Morgenthau, Manhattan District Attorney, New York, New York ....................................................................................................................... 26 Hon. Michael Chertoff, Assistant Attorney General for the Criminal Division, U.S. Department of Justice ................................................................................. 29 Hon. Donald Alexander, former Commissioner, Internal Revenue Service (President Ford) ................................................................................................... 37 Hon. Sheldon Cohen, Former Commissioner, Internal Revenue Service (Presi- dent Johnson) ....................................................................................................... 38 ALPHABETICAL LIST OF WITNESSES Alexander, Hon. Donald: Testimony .......................................................................................................... 37 Prepared statement .......................................................................................... 77 Chertoff, Hon. Michael: Testimony .......................................................................................................... 29 Prepared statement .......................................................................................... 68 Cohen, Hon. Sheldon: Testimony .......................................................................................................... 38 Mongenthau, Hon. Robert M.: Testimony .......................................................................................................... 26 Prepared statement .......................................................................................... 56 O’Neill, Hon. Paul H.: Testimony .......................................................................................................... 8 Prepared statement .......................................................................................... 45 EXHIBITS 1. Letter from U.S. Secretary of the Treasury Paul H. O’Neill, dated June 7, 2001, to G-7 Ministers Brown, Eichel, Fabius, Martin, Shiokawa, and Visco, regarding the OECD tax haven initiative ........................................... 81 2. Department of Treasury News Release, dated May 10, 2001, Treasury Secretary O’Neill Statement on OECD Tax Havens ....................................... 83 3. Department of Treasury News Release, dated February 17, 2001, State- ment By Treasury Secretary Paul H. O’Neill At The Post G-7 Press Con- ference ................................................................................................................ 85 4. Letter from former Internal Revenue Service Commissioners Cohen, Alex- ander, Caplin, Kurtz, Richardson, Thrower and Walters, dated June 7, 2001, to Secretary of the Treasury Paul H. O’Neill, regarding his Op- Ed in the May 10, 2001, issue of The Washington Times ............................. 87 5. Chart: 2000 OECD List of Offshore Tax Havens ............................................ 91 6. Chart: Commitments Sought From Tax Havens ............................................ 92 7. Chart: Number of U.S. Taxpayers Reporting Foreign Accounts and Num- ber of Offshore Banks and Companies in 35 OECD Tax Havens ................. 93 (III) VerDate 11-MAY-2000 12:59 Dec 04, 2001 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 75473.TXT SAFFAIRS PsN: SAFFAIRS IV Page 8. Chart: Out of approximately 2000 accounts open in 1985, 95% of Guard- ian Bank’s clients were U.S. citizens and virtually 100% were engaged in tax evasion; testimony of John Mathewson, former owner of Guardian Bank & Trust Ltd. in the Cayman Islands, March 1, 2001, hearing before the Permanent Subcommittee on Investigations ................................ 96 9. Letter of Commitment of the Republic of Seychelles, February 13, 2001 .... 97 10. Letter from House Majority Whip Tom DeLay, dated June 20, 2001, to Secretary O’Neill, regarding information exchange tax initiatives .......... 101 11. Memorandum from The Prosperity Institute, dated June 28, 2001, to Secretary O’Neill, regarding request for meeting with Secretary O’Neill ... 102 12. Center for Freedom and Prosperity Special Alert, June 15, 2001 ................ 105 13. Center for Freedom and Prosperity Strategic Memo, June 16, 2001 ........... 106 14. Center for Freedom and Prosperity Press Statement, June 28, 2001 .......... 108 15. Center for Freedom and Prosperity Strategic Memo, July 5, 2001 .............. 109 16. The New York Times Editorial, ‘‘A Retreat on Tax Havens,’’ May 26, 2001 .................................................................................................................... 111 17. The Wall Street Journal, ‘‘U.S. Could Abandon Initiative To Crack Down on Tax Havens,’’ February 22, 2001 ................................................................ 112 18. The Miami Herald, ‘‘U.S. Won’t Pressure Offshore Tax Havens, O’Neill Says,’’ May 11, 2001 ......................................................................................... 114 19. The Washington Post Op-Ed by David Ignatius, ‘‘The Tax Cheats’ Friends,’’ April 29, 2001 ................................................................................... 116 20. Financial Times, ‘‘Avenue of the Americas: OECD Meets the XFL,’’ Feb- ruary 14, 2001 ................................................................................................... 117 21. The Washington Post Op-Ed by Robert D. Novak, ‘‘Global Tax Police,’’ April 19, 2001 .................................................................................................... 118 22. Letter from Internal Revenue Service Commissioner Charles O. Rossotti, dated July 17, 2001, to Permanent Subcommittee on Investigations’ Chairman Carl Levin, regarding Subcommittee inquiry on whether off- shore accounts reduce U.S. taxpayers’ tax liability ....................................... 119 23. Letter from Donald C. Alexander, dated June 15, 2001, to Treasury Secretary Paul H. O’Neill, regarding ‘‘Tax Havens and Enforcement of Our Tax Laws’’ .................................................................................................. 120 24. Supplemental questions and answers of Treasury Secretary Paul H. O’Neill ................................................................................................................ 121 25. Towards Global Tax Co-operation, Report to the 2000 Ministerial Council Meeting and Recommendations by the Committee on Fiscal Affairs, Progress in Identifying and Eliminating Harmful Tax Practices, prepared by the Organisation for Economic Co-operation and Development .............. 125 26. Statement for the record of John T. Lyons, former IRS Assistant Commis- sioner and former U.S. Competent Authority (USCA) responsible for ad- ministering tax treaties and agreements ........................................................ 153 27. Statement for the record of Robert S. McIntyre, Director, Citizens for Tax Justice