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Should Offshore Financial Centers and Aggressive Tax Practices Be Eliminated?

YES The problem with OFCs is that they operate in a shroud of secrecy that allows companies to establish operations there for illegal and unethical purposes. In $2016,$ the so$-$called Panama Papers, a treasure trove of an estimated $11\mathrm{.}5$ million internal documents of a firm in Panama called Mossack Fonseca, were obtained by German newspapers and shawed with others worldwide, including the New York Times. The papers showed how Mossack Fonseca helped wealthy clients evade U$.$S$.$ taxes in very creative ways. Mossack Fonseca set up over $2,800$ companies for at least $2,400$ U$.$S$.$ clients in the British Virgin Islands, Panama, and the Seychelles, among other taxhaven countries. However, this scandal was worldwide. The prime minister of Iceland, who was named in the papers, even resigned because of the appearance of impropriety. Not all of the transactions were considered illegal, but several people have been indicted for their activities. A former prime minister of Pakistan was convicted and sentenced to prison. U$.$S$.$ officials indicted four participants in late $2018,$ and it's probably just a matter of time before more people face charges. ${?}^{51}$

As another example, Italian company Parmalat set up three shell companies based in the Caribbean to capture cash. The companies allegedly sold Parmalat products, and Parmalat sent them fake invoices and charged costs and fees to make the sales look legitimate. It would then write out a credit note for the amount the subsidiaries supposedly owed and take that to banks to raise money. Given the location of the subsidiaries, you would think the banks would have been suspicious, but Parmalat got away with these activities.

Off$-$balance$-$sheet financing was also used to hide debts at Parmalat. The company transferred over half of its liabilities to the books of small subsidiaries based in offshore tax havens such as the Cayman Islands. This allowed it to present a healthy balance sheet and a profitable income statement to investors and creditors by hiding large amounts of debt, understating interest expenses $($thus overstating income$),$ and overstating revenues for false bookings. Parmalat's actual debt was nearly double the amount disclosed to outsiders.

Terrorists and drug dealers also use OFCs to launder money. When the U$.$S$.$ government went after the money of Osama bin Laden, it went after OFCs notorious for their secrecy$.$ When a bank in the Bahamas refused to open its books to U$.$S$.$ government investigators, the United States cut the bank off from the world's wire transfer systems. Within two hours, the bank changed policies. ${?}^{52}$ Standard Chartered plc$,$ a British bank, was fined $$340$ million for violating U$.$S$.$ money$-$laundering laws involving an illegal scheme to hide more than $60,000$ transactions worth $$250$ billion for Iranian clients. ${?}^{53}$ These kinds of activities must stop.

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