By Daniel Zoltai
The IRS Voluntary Disclosure Program for US persons who have not properly reported their non-US bank and other financial accounts and offshore structures, such as foreign trusts and companies controlled by US persons ended on October 15, 2009.
In the last week, Democrat Senator Carl Levin has offered his Stop Tax Haven Abuse Act as an amendment to the Senate Finance Committee's healthcare bill, bringing the issue of tax haven abuse back to the table just after the close of the IRS program, a move that is supported by Barack Obama.
With current reports detailing thousands of individuals coming forward to declare their offshore assets, there has been little disclosure made by major corporations. While public corporations are fairly transparent and often show up in examples of tax haven abuse, privately held corporations are much more likely to hide behind a veil of secrecy and employ complex off-shore structures in order to avoid taxes.
Take the example of Koch Industries. This the largest privately held conglomerate on the planet, employing approximately 70,000 people worldwide with annual revenues exceeding $100 billion. Their financials are kept strictly confidential and they do not disclose information about their management structure and activities. Koch is known to be aggressive with their tax avoidance strategies, having sued the IRS for $20 million in 2006 claiming that their tax refund was not correct. Public documents available on the Luxembourg government website, Legilux.lu, reveal that Koch operates a complex system of offshore companies and accounts in order to avoid paying US taxes on huge sums of corporate profits. Out of his Kansas office, Global Tax Director for Koch Industries, Craig M. Munson, manages these offshore corporations with the assistance of a shady Luxembourg company, ATOZ s.a., whose partners are primarily former Arthur Anderson staffers – the tax advisory giant that ceased to exist as a result of their felony conviction in the Enron “off-shore and off-balance sheet” debt scandal of 2002.
With the help of his offshore tax avoidance experts at ATOZ, Mr. Munson has set up a network of companies under the brand name “KoSa” that are used to move and consolidate funds offshore in order to avoid taxes. Some of the companies include “KoSa Foreign Investments” which was formed in June 2009 with over $1.8 billion in capital and “KoSa Luxembourg” which in August of this year declared a capital of over 520 million Euros. There are also vehicle companies such as “KoSa US Receivables Company” which declared a capital of nearly $185 million in August and “KoSa Canada Receivables Company” with a capital of nearly $35 million. These companies, and several others in the “KoSa” structures set up by Mr. Munson and his ATOZ facilitators are shells with no employees or physical operations. They are all incorporated under the “s.a.r.l.” status which has light reporting and governance requirements and is normally used for small businesses. When the sums involved are significant, such as the case here, the use of an “s.a.r.l.” is often cover for money laundering or tax avoidance schemes. In this case, it appears that these companies exist for no reason other than to avoid the payment of taxes. This is not the first time that Mr. Munson’s Luxembourg companies are involved in nefarious activity. In 2002, Arteva s.a.r.l., a Luxembourg company doing business as “KoSa” with Mr. Munson named as manager, was sued by the United States and plead guilty to charges of criminal price fixing.
A government source, wishing to remain anonymous due to direct proximity with the issue, has confirmed that the IRS will be investigating the matter.