[Congressional Record (Bound Edition), Volume 154 (2008), Part 17]
[Senate]
[Page 23826]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          OFFSHORE TAX HAVENS

  Mr. LEVIN. Mr. President, I will ask to have printed in the Record a 
timely opinion piece that was written by Mr. Robert M. Morgenthau, the 
District Attorney of the County of New York, and appeared in the Wall 
Street Journal on Tuesday, September 30. Since the 1960s, Mr. 
Morgenthau has been a leader in the fight against the abuse of offshore 
havens for fraud, money laundering, tax evasion and a host of other 
illicit activities.
  As Congress votes on a plan to restore the soundness and credibility 
of our financial system, Mr. Morgenthau's column correctly reminds us 
of a factor that contributed significantly to this financial crisis--
the activities of financial institutions that have hidden away 
trillions of dollars in offshore tax havens and that claim to be 
domiciled in those offshore havens, when all of their key personnel and 
operations are here in the United States. Mr. Morgenthau points out 
that this charade places these trillions of dollars, and the activities 
of the entities that control them, outside the oversight and 
supervisory control of the U.S. financial regulatory system. As the 
hearings held by the Permanent Subcommittee on Investigations, which I 
chair, have demonstrated, this charade is also a breeding ground for 
tax abuse, draining our system of billions of dollars in needed tax 
revenues.
  In his article, Mr. Morgenthau reminds us that the supervisory and 
safety mechanisms that have been established to protect our citizens 
and their savings are dependent on transparency and strong regulatory 
vigilance. So is our tax system. When funds are hidden in offshore 
jurisdictions that promote secrecy and weak regulatory standards, and 
the funds are controlled by entities that claim they are not subject to 
our regulatory system, the safety net that we have established cannot 
function to provide our citizens the security it was designed to offer.
  While we have voted on a plan to alleviate the current crisis, we 
have a lot more work to do to rectify the root causes of this problem. 
As Mr. Morgenthau points out, the abuse of offshore jurisdictions by 
financial institutions must be high on that agenda, and I look forward 
to addressing this matter in the next Congress.
  Mr. President, I ask unanimous consent to have the opinion piece to 
which I referred printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, Sept. 30, 2008]

                 Too Much Money Is Beyond Legal Reach'

                       (By Robert M. Morgenthau)

       A major factor in the current financial crisis is the lack 
     of transparency in the activities of the principal players in 
     the financial markets. This opaqueness is compounded by vast 
     sums of money that lie outside the jurisdiction of U.S. 
     regulators and other supervisory authorities.
       The $700 billion in Treasury Secretary Henry Paulson's 
     current proposed rescue plan pales in comparison to the 
     volume of dollars that now escape the watchful eye, not only 
     of U.S. regulators, but from the media and the general public 
     as well.
       There is $1.9 trillion, almost all of it run out of the New 
     York metropolitan area, that sits in the Cayman Islands, a 
     secrecy jurisdiction. Another $1.5 trillion is lodged in four 
     other secrecy jurisdictions.
       Following the Great Depression, we bragged about a newly 
     installed safety net that was suppose to save us from such a 
     hard economic fall in the future. However, the Securities and 
     Exchange Commission, the Federal Reserve System, the 
     Comptroller of the Currency and others have ignored trillions 
     of dollars that have migrated to offshore jurisdictions that 
     are secretive in nature and outside the safety net--beyond 
     the reach of U.S. regulators.
       We should have learned a long time ago that totally 
     unsupervised markets, whether trading in tulips or subprime 
     mortgages, will sooner rather than later get into trouble. We 
     don't have to look back very far in history to understand 
     this.
       Long Term Capital Management, a hedge fund ``based'' in 
     Greenwich, Conn., but composed of eight partnerships 
     chartered in the Caymans, was supposed to be the wunderkind 
     of the financial world. At its peak in the late 1990s, its 
     gross holdings were valued at $1.8 trillion. But, 
     regrettably, its liabilities exceeded its assets and the 
     Federal Reserve Bank of New York had to step in and rescue it 
     when the value of its assets plummeted.
       Most recently, two Bear Stearns hedge funds, based in the 
     Cayman Islands, but run out of New York, collapsed without 
     any warning to its investors. Because of the location of 
     these financial institutions--in a secrecy jurisdiction, 
     outside the U.S. safety net of appropriate supervision--their 
     desperate financial condition went undetected until it was 
     too late.
       Of course, BCCI Overseas, which was part of the then 
     largest bankruptcy in history, was also ``chartered'' in the 
     Caymans.
       We have to learn from our mistakes. Any significant 
     infusion to the financial system must carry assurances that 
     it will not add to the pool of money beyond the safety net 
     and supervisory authority of the United States. Moreover, the 
     trillions of dollars currently offshore and invested in funds 
     that could impact the American economy must be brought under 
     appropriate supervision.
       If Congress and Treasury fail to bring under U.S. 
     supervisory authority the financial institutions and 
     transactions in secrecy jurisdictions, there will be no 
     transparency with the inevitable consequences of the lack of 
     transparency--namely, a repeat of the unbridled greed and 
     recklessness that we now face. Because of the monolithic 
     character of world financial markets, a default crisis 
     anywhere becomes a default crisis everywhere.

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