Grey matters

Are cryptocurrencies super tax havens?
Omri Marian, 112 MICH. L. REV. FIRST IMPRESSIONS (forthcoming 2013)

This short essay describes the mechanisms by which cryptocurrencies – a subcategory of virtual currencies – could replace tax havens as the weapon-of-choice for tax-evaders. I argue such outcome is reasonably expected in the foreseeable future due to the contemporary convergence of two processes. The first process is the increasing popularity of cryptocurrencies, of which Bitcoin is the most widely recognized example.

The second process is the transformation of financial intermediaries to agents in the service of tax authorities in the fight against offshore tax evasion. Financial institutions are faced with increased governmental pressure to deliver information about account holders, to withhold taxes from earnings accumulating in financial accounts, and to remit such taxes to taxing authorities around the world. Significantly, cryptocurrencies possess all the traditional characteristics that tax haves do. Earnings are not subject to taxation, and taxpayers’ anonymity is maintained. The operation of cryptocurrencies, however, is not dependent on the existence of financial intermediaries.

Thus, cryptocurrencies have the potential of defeating the recent successes of governments in battling offshore tax evasion. I further suggest that while governments have paid some attention to the issue, they have so far failed to identify the acuteness of the potential problem.

CFR comment:

Bitcoin and other ‘cryptocurrencies’ have obvious uses for people evading taxes and governments have taken notice. Prof. Marian, a rising star in the tax world, examines how these can be used to defeat recent innovations in anti-evasion efforts. He notes that many of the measures being considered now work only on cryptocurrency-to-ordinary currency exchange points and suggests that governments may choose more direct attacks on the users of cryptocurrencies.

GAO to IRS: ‘Pursue quiet disclosures and first time FBAR filers’
Charles P. Rettig, Journal of Tax Practice & Procedure, CCH-Wolters Kluwer Publishers, pp. 21-28, June-July 2013

Recently, the Government Accountability Office (GAO) issued a report based on a review of the 2009 IRS Offshore Voluntary Disclosure Program (OVDP). The GAO Report recommended and the IRS agreed that going forward it should (1) use offshore data to identify and educate taxpayers who might not be aware of their reporting requirements; (2) explore options for employing a methodology to more effectively detect and pursue quiet disclosures and implement the best option; and (3) analyze first-time offshore account reporting trends to identify possible attempts to circumvent tax, interest and possibly penalties that might be due and take action to help ensure compliance.

CFR comment:

We’re stretching a bit to claim Mr. Rettig in Academic Alert, as he’s a lawyer at Hochman, Salkin, Rettig, Toscher & Perez, P.C. in Beverly Hills, California, but since he posted his piece on SSRN, we’ll include him. This brief article recounts the GAO’s recommendations to the IRS on how to handle offshore data about unreported bank accounts. This is of great importance to U.S. taxpayers since FATCA, and will also be of interest to service providers working with U.S. taxpayers.

Does Swiss bank secrecy violate international human rights?
Stephen B. Cohen, Georgetown University Law Center, July 22, 2013

Prof. Stephen Cohen, a tax academic who served as Deputy Assistant Secretary of State for Human Rights in the Carter Administration. In this comment, Prof. Cohen asks whether states like Switzerland, which provide bank secrecy for the offshore accounts of wealthy citizens of developing countries, violate internationally recognized human rights. The United Nations Covenant on Economic, Social, and Cultural Rights explicitly recognizes rights to adequate food, clothing, housing, health care, clean water, sanitation, and education. Bank secrecy has a significant human rights impact if it deprives developing countries of tax revenues needed to meet basic rights guaranteed by the Covenant. The annual tax gap for developing countries caused by bank secrecy is estimated to range from over $100 billion to several times that amount. Thus, it seems indisputable that bank secrecy impedes the ability of developing countries to fulfill internationally recognized human rights.

CFR comment:

This article raises a new argument that will certainly be used against offshore jurisdictions: they prevent governments of developing countries from collecting the taxes necessary to “meet basic economic rights guaranteed by the United Nations Covenant on Economic, Social, and Cultural Rights.” The author is a serious tax professor and so this is a serious claim.

Relying on the conclusions of a “committee of legal experts convened by Maastricht University and the International Commission of Jurists” concluded that the Covenant has extraterritorial effects that could impose an obligation on states to control use of financial institutions in their jurisdictions to evade (and perhaps avoid) taxes owed elsewhere. The author concludes that it “seems indisputable that offshore accounts impede the fulfillment of internationally recognized human rights.”

Of course, there is no discussion of the violations of the Covenant by the world’s corrupt governments or of any benefit that might be produced by the provision of the rule of law by offshore jurisdictions.

This paper reaches a staggering conclusion in just 7 pages (double spaced!) – but this argument is one to which offshore jurisdictions need to be prepared to respond. This idea is merely sketched in this piece, but the army of anti-offshore activists will be putting flesh on the bones through more self-appointed “committees of legal experts.”

So banks are terrorists now? The misuse of the civil suit provision of the Anti-Terrorism Act
Geoffrey Sant,  Arizona State Law Journal, Vol. 45, No. 2, Summer 2013, available at

This article argues that the Anti-Terrorism Act (ATA) has been misused, violating both the intent of Congress and the statute’s clear language.

Congress created the ATA to allow victims of overseas terrorism to bring suits against their terrorist attackers. That same Congress also recognized that the ATA would be used only rarely to collect damages, because few terrorists have assets in the U.S. In fact, the Senate sponsor of the ATA bill began his opening statement by explicitly announcing that “this legislation is, in part, symbolic, I confess.” Congressional testimony emphasized that “there are not very many circumstances in which the law can be employed.”

For the first decade of its existence, reality matched these expectations. Not a single reported decision so much as referenced the ATA’s civil suit provision. However, just one decade later, there are over one hundred reported decisions citing to the ATA.

This enormous sea-change has occurred because courts, sympathetic to victims of terrorism, creatively interpreted the ATA to permit suits to proceed against non-terrorists, such as financial institutions. These suits claim that the banks have committed “international terrorism” by processing transactions that allegedly reached a terrorist entity. This is equivalent to suing a bank as a murderer because somebody withdrew money from an ATM, bought a gun, and then killed people. The perverse result is that the Anti-Terrorism Act is primarily used in suits against non-terrorist businesses.

This expansive interpretation of the ATA not only violates congressional intent, it also violates the statute’s clear language. The ATA’s definition of “international terrorism” is, “violent acts or acts dangerous to human life.” Financial transactions are neither “violent” nor “dangerous.” The entire basis for describing banking transactions as “dangerous” originated with a single unsupported analogy in which financial transfers were compared to giving a loaded gun to a child. This untethered analogy treats money, a neutral object, equivalently to a loaded gun, a dangerous object. Moreover, courts applying the ATA to financial transactions have had to claim that the ATA “incorporates by reference” statutes passed half a decade after the ATA, even though these statutes make no reference to the ATA – and in fact appear to avoid referencing the ATA.

The misuse of the ATA creates severe public policy problems. In many of the ATA suits against banks, the alleged “terrorist” holding the bank account is not on any government terrorist watch-list. In other words, the bank is threatened with crippling litigation for failing to identify terrorists more quickly than the U.S. government’s own intelligence agencies. Furthermore, the ironic result of allowing ATA suits to proceed against financial institutions is that by turning banks into the financial guarantors of terrorists, the terrorists are effectively immunized from liability.

Adding to the irony is that the ATA “punishes” terrorists – who are interested in wreaking destruction upon the societies they target – by inflicting financial destruction upon a third-party business within the targeted society. If a bank financially collapsed under the weight of ATA litigation, terrorists may very well consider this to be a success as great as any individual terrorist attack. Even the steps that banks may take in response to ATA litigation are undesirable. Banks may avoid customer relationships with individuals of “suspect” ethnicity, religion or national origin; thus effectively institutionalizing discrimination based on race, religion and nationality.

The goal of financially compensating victims of international terrorism can be better accomplished through a compensation fund. In fact, the September 11th Victim Compensation Fund was created in part to avoid inefficient and destructive litigation against third-party businesses, such as airlines, for the acts of terrorists. Such a fund accomplishes the goal of compensating victims without economically destroying non-terrorist third-parties.

CFR comment:

Bravo! We need say no more. We hope the U.S. courts listen.


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Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

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