Paul Manafort, President Trump’s former campaign chairman, and Richard Gates, Manafort’s business partner, are alleged by an indictment to have, among other things, laundered money through shell companies and foreign bank accounts in Cyprus, Seychelles, and St. Vincent and the Grenadines. (Both have pleaded not guilty to the charges in the indictment, which include money laundering.)
In all, the indictment says, $75 million flowed through these accounts, and they funded Manafort and Gates’s lifestyles in the U.S. The indictment emerged from Special Counsel Robert Mueller’s investigation into Russian interference in the 2016 U.S. presidential election.
A shell company is a legal entity that, as Casey Michael wrote in The Atlantic in July, exists “solely for the purpose of masking ownership of wealth, property, and other assets, serve as a middleman of sorts, helping those behind them move funds from one place to another.” Setting up shell companies, as Manafort and Gates are alleged to have done, isn’t necessarily illegal—nor are they difficult to set up. When it does became illegal, however, is when shell companies are used to evade taxes and launder money—which Manafort and Gates are alleged to have done. Having a foreign bank account isn’t illegal, either. But U.S. citizens with foreign bank accounts with more than $10,000 at the start of the year they are filing taxes must, under U.S. law, report those accounts to the U.S. Treasury. They must also declare any foreign accounts to the Internal Revenue Service while doing their taxes. Manafort and Gates are alleged to have done neither.
What they are alleged to have done is operate shell companies and bank accounts in Cyprus, the Indian Ocean nation of Seychelles, and the Caribbean nation of St. Vincent and the Grenadines. Until recently—some would argue today, too— Cyprus was a favored destination as a tax haven, the term used to describe countries that offer foreign businesses little or no tax liability. Seychelles and St. Vincent and the Grenadines are smaller, but are popular destinations for offshore funds.
There is no fixed definition of what constitutes a tax haven. The International Monetary Fund and the Organization for Economic Cooperation and Development, the club of the world’s richest countries, maintain their own lists of such countries using differing methodologies. Both lists have been criticized as politicized. The European Union maintains a black list of tax havens based upon lists maintained by its individual member states. Then there are the lists maintained by organizations like Oxfam, the charity group, and the Tax Justice Network, which specializes in the study of overseas tax havens.
Cyprus, Seychelles, and St. Vincent and the Grenadines feature in some of the multilateral and national lists, as well as the independent lists.
Oxfam included Cyprus in its list of the “world’s worst corporate tax havens.” The Tax Justice Network’s financial-secrecy index pointed out that Cyprus does not “require that company ownership details are publicly available online” or that “company accounts be available on public record.” This makes Cyprus an attractive destination for those who want to conceal their identities, and even the fact that a given company exists at all. Cyprus’s laws also don’t require companies on its territory to tell Cypriot tax authorities about payments to non-Cypriots.
Manafort’s financial links to Cyprus were documented earlier this year by The New York Times in a story that referred to Cyprus as a “secretive tax haven.” That label prompted Nicosia’s ambassador to the U.S. to write the newspaper complaining about the “accusatory tone” of its coverage. But Cyprus has long been linked to money-laundering, especially Russian money laundering: Members of the European Parliament urged the country this week to investigate alleged Russian money laundering through banks in Cyprus. Cyprus denies such activities occur, citing the overhaul of its financial system in the wake of the 2008 financial crisis that resulted in its banks needing a bailout that was ultimately provided by the IMF, the European Central Bank, and the European Union.
Seychelles, meanwhile, was labeled a “corruption-haunted archipelago” that is “an offshore magnet for money launderers and tax dodgers” in a 2014 report by the International Consortium of Investigative Journalists. The country is far more secretive than Cyprus, according to the Tax Justice Network, allows “harmful legal vehicles,” and lacks laws that discourage foreign tax evasion. Seychelles was among the favorite places where shell companies were set up by Mossack Fonseca, the law firm at the heart of the Panama Papers leaks.
St. Vincent and the Grenadines might be small, but it’s far more secretive than either the Seychelles or Cyprus—with various tax and income loopholes that foreigners can employ to avoid paying taxes in their own countries. The Caribbean nation was on a EU black list of states that are insufficiently cooperative with the bloc’s financial regulators.
All three countries are among 24 nations that received far more foreign capital than countries of their size typically do. This list was devised by researchers at the University of Amsterdam who pointed out that what makes these countries retain foreign investment is, in part, some lax rules governing corporations, banks, or both.
It is regulations like those, combined with little to no corporate taxes, that allow tax havens to thrive. Gabriel Zucman, the author of The Hidden Wealth of Nations: The Scourge of Tax Havens, estimates that $7.6 trillion is stashed in tax havens around the world. That accounts for about 8 percent of the world’s personal financial wealth. This hidden money, he argues, amounts to about an additional $200 million in global tax revenue each year. But as my colleague Uri Friedman previously reported: “Other experts claim that the amount of private offshore wealth may be two to four times as high as Zucman’s figure of $7.6 trillion. Needless to say, measuring the size of an industry whose purpose, in part, is to obscure its size isn’t easy or precise.”