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The
Corporate Reform Weekly
Vol V, #30, August 7, 2006
In
This Issue..
Tax Shelters
1. Tax shelters
cost US Treasury between $40 and $70 billion, report finds
Pension Reform
2. Senate
finally passes pension reform
Corporate Scandals
3. Court
overturns convictions for Merrill Lynch execs who helped Enron
Securities and
Exchange Commission
4. Christopher
Cox marks one year at the SEC
Sarbanes-Oxley
5. Treasury
Secretary Paulson, others call for rolling back Sarbanes-Oxley
This
Week’s Action Item
Tell your Senators
to crack down on tax shelters
Tax
Shelters
1.
Tax shelters cost US Treasury between $40 and $70 billion, report finds
An extensive network
of offshore tax shelters costs the U.S. Treasury between $40 and $70 billion a
year, according to a report released last week by the Senate Permanent
Subcommittee on Investigations. The report documents several cases of the very
wealthiest Americans paying millions of dollars to specialized tax-shelter
consultants who advise them how to avoid paying taxes in billions of dollars
through complicated transactions, usually involving offshore tax havens.
“Offshore tax havens
hold trillions of dollars in assets supplied by high-net-worth individuals
around the world,” said Sen. Carl Levin (D-Mich.), the ranking minority member
on the committee. “Our investigation blows the lid off tax haven abuses that
use sham trusts, shell corporations, and fake economic transactions to hide the
fact that U.S. citizens are controlling offshore assets, circumventing U.S.
legal requirements, and dodging taxes. These outrageous tax haven abuses are
eating away at the fabric of our tax system, and it is long, long past time to
shut them down. Tax havens have, in effect, declared war on honest U.S.
taxpayers, and we’ve got to fight back utilizing the full legislative,
executive, and administrative powers of the United States government.”
“Using offshore
jurisdictions to shelter income is unfair and I intend to fix this problem,”
said Sen. Norm Coleman (R-Minn.), the committee’s chairman. “Offshore tax
havens and secrecy jurisdictions are used to hold trillions of dollars in
assets that are out of reach from taxation. I'm particularly troubled by an
industry of tax professionals, lawyers, trust specialists, bankers, and
brokers, that permit, facilitate, promote, and exploit loopholes in the tax
code. We need our professional community to be pillars of commerce rather than
pillars of circumvention. We need to close these loopholes.”
The Levin-Coleman
report is based on 80 interviews and 2 million pages of documents.
Sens. Levin and
Coleman also urged the Senate to pass S. 1565, the Tax Shelter and Tax Haven
Reform Act, which, according to Sen. Levin, “would authorize the Treasury
Secretary to issue a list of tax havens that don’t cooperate with U.S. tax
enforcement and eliminate U.S. tax benefits for income in those jurisdictions.
The ability to penalize uncooperative tax havens would hand our government a
mighty club to combat tax haven abuses.”
For more details on
the report, See “Permanent Subcommittee on Investigations Issues Report On
Offshore Tax Haven Abuses That Cost U.S. Taxpayers Over $40 Billion Each Year,”
Press release of Sen. Carl Levin: http://levin.senate.gov/newsroom/release.cfm?id=260030
Pension Reform
2. Senate
finally passes pension reform
Senators last week
voted 93-5 last week to approve an extensive pension reform package that will
force companies to invest more in their defined-benefit pension plans for older
workers while giving companies for incentives to invest in 401(k) plans for
younger workers.
Following on a
similar bill passed recently in the House, the President is expected to sign
pension reform into law sign.
Pension reform is
much overdue. Companies have grossly underinvested in worker pensions in recent
years. The potential shortfall is estimated at $450 billion. Since the federal
government guarantees corporate pensions through the Pension Benefit Guaranty
Corp., the potential shortfall could ultimately result in a huge taxpayer cost.
Already, companies have defaulted on $8 billion worth of pension obligations in
recent years, and the PBGC has been forced to pick up some of that tab. The
PBGC says that it currently faces a $22.8 billion deficit.
The new rules will
require company plans to be 100 percent funded, whereas current rules allow
plans to be 90 percent funded. Companies will have seven years to get there,
except for certain airlines, who claimed they need even more time. In general,
though, the bill will should have the effect of forcing companies to invest
more in their pension plans in order to guarantee that they can meet their
obligations – as opposed to defaulting and forcing taxpayers to bail them out.
The new rules also
promote automatic enrollment into 401(k) plans for younger workers. These plans
– known as defined-contribution plans – have largely replaced the old-style
guaranteed (or defined-benefit) plans. Companies generally prefer the
defined-contribution plans because it allows them to shift the risk of
investing for retirement onto workers.
For more, see:
“Senate OKs Sweeping
Pension Legislation: Senate Approves and Sends to the White House Sweeping
Pension Legislation,” By JIM ABRAMS, Associated Press:
http://abcnews.go.com/Politics/print?id=2272340
“Senate Approves
Pension Overhaul: Measure Seeks Better Company Funding, Stronger Insuring
Agency,” By Amy Goldstein of the Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/03/AR2006080301337_pf.html
“A Pension Overhaul
Gives, and Later Takes Away,” By MARY WILLIAMS
WALSH
http://www.nytimes.com/2006/08/05/business/05pension.html
Corporate
Scandals
3.
Court overturns convictions for Merrill Lynch execs who helped Enron
Four former Merrill
Lynch & Co executives who were convicted in 2004 of helping Enron inflate
its earnings were exonerated last week when a three-judge panel of the U.S.
Court of Appeals for the 5th Circuit ruled that the government had not provided
adequate evidence for proving fraud, overturning the convictions.
The executives --
James A. Brown, William R. Fuhs, Daniel Bayly and Robert S. Furst – had
initially been convicted in connection with a 1999 deal that involved a $7
million loan of energy-generating barges in Nigeria. The deal was set up to
look like a sale so that Enron could book the profits and meet its quarterly
earning projections.
But the court said
that since the executives did not benefit personally from the deal, it fell
outside the limits of the “honest-services fraud” that government prosecutors
had claimed the executives committed.
Justice Department
spokesman Bryan Sierra told reporters that: “The Justice Department is
reviewing the decision and considering our options.”
For more, see:
“Enron-Related Convictions Overturned,” Associated Press:
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/01/AR2006080101848_pf.html
Securities
and Exchange Commission
4.
Christopher Cox marks one year at the SEC
It has now been one
year since Christopher Cox took over as chairman the Securities and Exchange
Commission. Though his nomination was strongly opposed by investor and consumer
rights groups as too pro-management, he has steered a more moderate course than
some expected.
Carrie Johnson of
the Washington Post interviewed Cox for a one-year anniversary
interview and wrote a one-year anniversary piece in the Post last week.
Johnson writes:
“When former
California lawmaker Christopher Cox took the helm of the Securities and
Exchange Commission a year ago this week, his arrival inspired a cauldron of
rhetoric.
Investor advocates
fretted that a man who advanced a free-enterprise agenda would waste little
time in dismantling rules adopted after fraud at Enron Corp. and WorldCom Inc.
Business groups pointed to his 87 percent lifetime approval rating by the U.S.
Chamber of Commerce as evidence that he would be their champion.”
“Yet, for the most
part, Cox has gone out of his way to avoid actions that would incite the
passion of admirers -- or the ire of his critics.”
“In an hour-long
interview yesterday, Cox continued that tradition, speaking in measured tones
on some of the most hotly contested issues before the SEC, including whether
the agency should oversee investment pools known as hedge funds and how it
should respond to complaints from trade groups about the expense of accounting
rules.”
See: “At SEC, a Year
of Relative Calm: Cox's Tenure as Chairman Hasn't Lived Up to Rhetoric,” By
Carrie Johnson, Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/01/AR2006080101473_pf.html
Sarbanes-Oxley
5.
Treasury Secretary Paulson, others call for rolling back Sarbanes-Oxley
In the ongoing
battle to chip away at Sarbanes-Oxley, advocates of rolling back reform got a
boost recently when newly-minted Treasury secretary Henry Paulson made a speech
at Columbia University calling for the “right regulatory balance” and
suggesting that maybe the Sarbanes-Oxley Act went too far in some areas.
“Often the pendulum
swings too far and we need to go through a period of readjustment,” Paulson
said. “The challenge before us now is how to achieve the right regulatory
balance to allow us to be competitive in today's world while guarding against
the recurrence of past abuses.”
Also recently, the
Financial Services Forum assembled leading House members and Treasury
Undersecretary Randal Quarles to bash the Sarbanes-Oxley Act.
"The high
burden of regulation and compliance is outsourcing America's lead in world
capital markets," Rep. Tom Feeney (R-Fla.) said through a spokeswoman.
"More companies are increasingly turning to London and Luxembourg instead
of New York in order to raise capital." Feeney is pushing for legislation
allowing some companies exemptions from Sarbanes-Oxley.
Quarles, through a
spokeswoman, said: "We must also ensure that U.S. regulation - including
the interpretation, implementation and enforcement of Sarbanes-Oxley - avoids
overburdening [the] markets."
Opponents of reform
have for years now been complaining that Sarbanes-Oxley regulations are too
onerous, but though they continue to complain publicly, they have so far not
been able to overturn any provisions.
For more, see:
“Paulson: Regs Went Too Far,” by Stephen Taub of CFO.com: http://www.cfo.com/printable/article.cfm/7244995?f=options
“Forum holds debate
on Sarbanes-Oxley,” By Elana Schor:
http://www.thehill.com/thehill/export/TheHill/News/Frontpage/071106/oxley.html
This
Week’s Action Item
Tell your
Senators to crack down on tax shelters
Last week, a report
by the Permanent Subcommittee on Investigations documented an extensive network
of off-shore tax shelters that cost the U.S. Treasury between $40 and $70
billion a year. The committee’s report documents several cases of the very
wealthiest Americans paying millions of dollars to specialized tax-shelter
consultants who advise them how to avoid paying taxes in billions of dollars
through complicated transactions, usually involving off-shore tax havens.
When the very
wealthiest Americans shamelessly avoid paying their fair share of taxes, it
means that the rest of us have to pay more and get less. Such tax-avoidance
undermines the fairness of the tax system.
As this week’s
action item, we urge you to tell your Senators that you’ve had enough. It’s
time to crack down on the tax shelters that cost the U.S. Government as much as
$70 billion a year. Tell your Senators to support, S. 1565, the Tax Shelter and
Tax Haven Reform Act, which, according to Sen. Levin, “would authorize the
Treasury Secretary to issue a list of tax havens that don’t cooperate with U.S.
tax enforcement and eliminate U.S. tax benefits for income in those
jurisdictions. The ability to penalize uncooperative tax havens would hand our
government a mighty club to combat tax haven abuses.”
Contact your
senators: http://www.senate.gov/general/contact_information/senators_cfm.cfm
MAKE YOUR VOICE
HEARD
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White House Comment Line: 202.456.1111
*
White House Fax Line: 202.456.2461
*
E-mail President George W. Bush
*
E-mail Vice President Dick Cheney
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White House Address: 1600 Pennsylvania Ave, Washington, DC 20500
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US Capitol Switchboard: 202.224.3121
*
Contact your senators:
http://www.senate.gov/general/contact_information/senators_cfm.cfm
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