Posted March 13, 2014
by Jerry Alatalo
“Laws can never be enforced unless fear supports them.”
– Sophocles (496-406 B.C.)
Jack Blum is the founder and chair of Tax Justice Network USA. Mr. Blum is a lawyer who has led the charge on eradication of tax havens and evasion, speaking here in Norway at a 2012 conference on the continuing problems associated with tax evasion schemes. His focus is on the basic principle that lawyers always face when deciding where and how to conduct and go ahead in their legal work: ethics. He believes that university law schools have fallen short on meeting their first obligation – teaching ethical legal conduct.
“Adherence to the values of society is what makes a society work; non-adherence results in chaos and a society which isn’t pleasant to live in.”
If lawyers work trying to find ways out of an area of responsibility (obeying tax laws) for their clients, then lawyers are simply practicing law in unethical, illegal ways. Those highest paid lawyers represent the people from “The Republic of Richistan”, borrowing a term coined by a European politician. The people of “Richistan” ask those lawyers who decide to practice in an unethical manner, “what can I do to get around laws by gaming the international system, so that I don’t have responsibility for the society I live in?”, then the lawyer (or team of lawyers) go about devising very complicated corporate structures to escape detection by state taxing agencies.
Business history began with simple partnerships where people would join in ventures and were responsible for everything that occurred in the day-to-day operations of their work. Corporations evolved and expanded to separate individuals from responsibility for their actions, culminating hundreds of years later in the present examples during the financial crisis of 2007-8 where it is extremely difficult to track down transactions which took down the economy.
Banks, insurance companies, and virtually every corporation with enough money to hire unethical lawyers typically consist of hundreds of entities designed specifically to avoid tax responsibility. Responsibility disappears in those hundreds of abstract entities, lawyered up in far off islands thousands of miles away from the nation/region where firms conduct business.
Mr. Blum gives the example of Transocean, the corporation that owned the rig operated by British Petroleum that exploded in the Gulf of Mexico and led to the greatest environmental catastrophe in U.S. history. Some have the belief that event effectively killed the entire Gulf of Mexico. In 1999, Transocean had its headquarters in Houston, Texas but then arranged to move its profits and dividends, becoming a Cayman Islands corporation, where there are no taxes.
After the Gulf of Mexico oil-spill disaster, people looked at Transocean’s corporate structure and found nothing – it had disappeared. Mr. Blum point out that this kind of corporate arrangement is now commonplace for everything – every large bank, every large insurance company, every large enterprise on the planet. Every one has a team of lawyers whose objective is to minimize tax, minimize liability, and eliminate responsibility.
Jack Blum asks the question everyone has asked: “why hasn’t anyone gone to jail for fraudulent actions leading to the 2007-8 crisis?” When there are 100’s of obvious instances where fraudulent securities got sold in various secretive ways, according to Mr. Blum those “classic” frauds were transacted in the tangled, secretive webs of lawyered-up creations consisting of thousands of obscure, abstract entities. Law firms and accounting firms involved in financial engineered tax evasion schemes protect themselves with contract language containing non-liability clauses.
Mr. Blum share the example of a lawyer advising his client to “restructure” $2 billion worth of already transacted business to make those billions in sales “disappear”. He points out then his view that, “clearly, this was a lawyer that should be disbarred” for organizing and perpetrating an obvious criminal fraud.
The problem, Mr. Blum points out, is whose bar has that responsibility? Who is responsible for disciplining the lawyer and which set of laws/rules apply to the lawyer working for the residents of “Richistan”? This and similar examples find no responsibility on the part of the lawyer(s) or companies to the societies they reside in, while escaping tax payment and other negative outcomes clearly illustrate unethical and antithetical behavior regarding the role of a lawyer. Mr. Blum points out that this is totally damaging to nations/societies and wonders out loud, “why do we accept this?”
The argument used by those who accept and profit from financial engineers’ tax evasion schemes is that states (governments) are “confiscatory”. This view, which has gripped those with enough money to qualify for citizenship in “Richistan”, lines up almost perfectly with the philosophy of Ayn Rand – it could be said, because of the almost unanimous corporate participation in tax evasion schemes, that to a great extent this world is an Ayn Rand world.
The balance between greed and responsibility has swung nearly completely in the direction of economic destruction, a precarious balance that now severely undermines the ability of states to provide for the welfare of its citizens, and to protect their citizens through criminal law enforcement.
Unfortunately, Mr. Blum points out, unethical lawyers that keep such an unhealthy societal balance firmly in place through facilitation of responsibility/tax evasion, have become the most well-paid kind of lawyers. He notes that no tax authorities can catch every criminal if every criminal has to be prosecuted. The system depends on 50% of the people being honest, and the other 50% in fear of what will happen if they’re caught and punished because of wrongdoing.
He sums up his talk: “Today the fear is missing, the capacity to enforce is missing, the complexity of the world system is overwhelming, and as a result we have real financial catastrophe. I think we’re talking about time for change, and time for change now.”
Jack Blum said “time for change now” way back in 2012.
(Thank you to PublishWhatYouPay Norway @ YouTube)