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Why Trump’s Commerce Secretary Wants You to Focus on Russia

Would it seem odd to suggest that Commerce Secretary Wilbur Ross might not mind the media’s probing of possible connections between his stake in shipping firm Navigator Holdings and the Kremlin? In response to questions put to him by the BBC [1] regarding ships Navigator leased to Sibur, a Russian energy company controlled by Kremlin cronies currently under U.S. sanctions, Ross seemed completely unfazed. The sanctions are against a key Sibur shareholder and not against the company itself Ross noted, so there is “nothing improper” about the transactions.  

While he’s actually right that the sanctions are against an individual and not the company it is still unclear if he perjured himself during his confirmation hearings.  Time will tell if he gets hauled up before the same committee again to answer for the recent revelations about his offshore holdings. No doubt Ross’s array of investments were put under an intense review by a phalanx of legal wizards prior to his Senate testimony and he chose his words very carefully so as to not cross the line. If that is the case he may have nothing to worry about.

On the other hand what might give him fits is if the American media dropped the Russia angle and began to run stories probing the role offshore financial centers, anonymous shell companies, and private trusts play in allowing multi-national corporations and mega-wealthy individuals like Ross to avoid paying a fair share of tax by hiding their wealth. If this type of coverage were to emerge in the same piranha-in-a-barrel frenzy currently surrounding the Russia story it might begin to shift the needle on Capitol Hill so that the opacity built into the financial system—all very legal by the way—might begin to crack. More sunlight means fewer places to hide wealth and more taxes paid. Not likely a proposition Ross covets.

Let’s play a fun mental exercise that helps demonstrate how secret offshore holdings can adversely impact daily life back home. The U.S. generates approximately 25% of global GDP. We’ll assume that a similar percentage of the estimated $10 trillion held offshore [2] is controlled by U.S. corporations and American citizens. That is equal to $2.5 trillion. Let’s also assume that the $2.5 trillion earns 10 percent interest annually, meaning it generates $250 billion in income. The annual tax loss on that amount—at a fairly modest 20 percent tax rate—is equal to $50 billion. To put this lost revenue in perspective, a recent report [3] by the American Society of Civil Engineers estimated that the U.S. has a 10-year $2 trillion gap in infrastructure investment. So, if the U.S. component of offshore wealth were taxed, the Treasury would reap one-quarter of the annual amount needed to help rebuild our tattered infrastructure.

Economists will no doubt cringe at this simplistic, back-of-the-envelope calculation, and rightly so. But we’re not aiming for precision here; merely a ballpark figure to try to put gargantuan numbers into a somewhat more easily understood context. Simply put, taxing offshore holdings would go a long way toward jump-starting a funding process whereby our roads, bridges, and public transit were not teetering on the edge of collapse. This is the very definition of the social contract: people pay taxes and get something from the government in return. When the very few hide their money offshore, the majority have to deal with the consequences.  

But while much of the media focuses on Ross’s—real or perceived—Russia connections they are, in the words of Deep Throat in All the President’s Men, missing the big picture. The white-hot focus on the Russia story, while raising extremely important questions about possible connections between one of the most powerful officials in the U.S. government and individuals who may have undermined an American presidential election, sacrifices the possibility of elucidating on the systemic problems related to tax fairness and losses of massive amounts of revenue in exchange for the pursuit of what is, in effect, the episodic nature of the Russia story.

There is no surprise here. Taxes are boring and Russians are dangerous. The Russia-as-destabilizer theme is a good story that includes oligarchs, Cypriot banks, and a federal probe; it grabs eyeballs. Add a car chase or two and you’ve got your Hollywood thriller in one nice little package (Ralph Fiennes as Vladimir Putin, anyone?). Articles on good governance and good policy make eyes glaze over. The journalist who can find the smoking gun (if there is one) in the Russia story will win a Pulitzer. The one who engages in a dogged chase to highlight the hypocrisy of the American tax system and the inanity of legal protection for anonymous shell companies will get a pat on the back.  

What will keep the Paradise Papers leak in the news in the U.S. is the specter of Vladimir Putin and the possibility that he helped put Donald Trump in the White House. Without this sugar coating the legacy of the Paradise Papers here, like the Panama Papers before them, is that it would literally be a one-day story. Which would probably be just fine to Wilbur Ross and those who hide their wealth within the shadowy warrens of a close-by tax haven. Unfortunately, while the Russia story is an important one, we ignore the offshore one at our peril.

Tom Cardamone is the Managing Director of Global Financial Integrity, a Washington, D.C.-based organization focused on limiting the flows of illicit money around the globe.  

[Editor’s note: The above story has been corrected to reflect that the U.S. sanctions are against a key Sibur shareholder, and not against the company, or majority shareholders.]

9 Comments (Open | Close)

9 Comments To "Why Trump’s Commerce Secretary Wants You to Focus on Russia"

#1 Comment By Tiktaalik On November 8, 2017 @ 3:01 am

Well said.
But it’s perfectly reasonable. To kick Russian can is very safe and lucrative for the journalists and media as a whole. Good reputation and high moral grounds in the battle against thuggish kleptocracy. No risk involved.

But if any journalist begin wandering into messy questions of uberriches and their overreach and will push too hard I think he’ll (along with his paper) be, figurally speaking, ‘shafted by a telegraph pole’ by the Masters of the Universe. And the choice is obvious.

#2 Comment By Michael Kenny On November 8, 2017 @ 10:17 am

I don’t think Ross’s connections to Russia will divert attention from the wider Paradise Papers story. Fundamentally, the Papers merely allow people to say out loud what everybody has known for years. What they show is that Russigate is about a lot more than just interference in the 2016 election. The Russian and American financial elites have been “intermingling” since the end of the cold war, most of the time, perfectly legally. That’s was Ross’s dealings show. The Russian elite having placed their stooge in the Kremlin, the next logical step for them was to place their stooge in the White House, using American intermediaries to help them. The American elite was perfectly happy to let the Russian elite have such slice of the cake as they chose to give it but the Russians made a grab for the whole cake! The majority of the US elite is now fighting back against both the Russians and their American “accomplices”. And the wider issue of tax havens is the centrepiece of the whole thing because tax havens have made it all possible.

#3 Comment By Jeeves On November 8, 2017 @ 2:08 pm

I’m not sure I’m following this. Unless Ross is actively (or passively) “hiding” earnings in off-shore tax havens, doesn’t he stand in the shoes of Apple or any of the numerous companies that haven’t repatriated foreign earnings in order to avoid having them taxed?

Whether or not Ross’s earnings held by “shell companies” or other vehicles are not taxed in the jurisdiction where they’re kept seems irrelevant. Doesn’t the current tax reform bill, HR 1, give some kind of limited tax amnesty to foreign earnings, and put the U.S. on the “territorial system” that other OECD countries use? Would Mr. Ross take advantage of the new law? Who knows? But I think it’s far more damning that he’s making the legalistic argument that splits ownership by Russian oligarchs from the entities they own.

#4 Comment By Louis Friend On November 8, 2017 @ 8:00 pm

I don’t even really care if they use a tax haven. I only get pissed when they have their money locked away but tell me I have to give up more of mine. I used to eschew the whole “fair share” thing as long as I was basically left alone to live my life as I saw fit.

I haven’t been left alone since 2008. The deal is off.

#5 Comment By EliteCommInc. On November 8, 2017 @ 8:29 pm

‘I’m not sure I’m following this. Unless Ross is actively (or passively) “hiding” earnings in off-shore tax havens, doesn’t he stand in the shoes of Apple or any of the numerous companies that haven’t repatriated foreign earnings in order to avoid having them taxed?’

This series of questions is why no on in public office should be permitted to hold stocks, bonds or positions in the financial industry they are elected to govern.

I am not going to bat an eye if all of the executives financial reps are called to carpet. I don’t have an issue with people being rich, by 2007/2007 has stripped me of any belief that they are not leveraging the system to their own advantage. And the brazenness of their attitude is irritating.

There’s not a reference here that is not a conflict of interest to the gentleman’s, dancing the legal rhetoric doe not evade the very spirit of the matter.

The fact that he is a fine man, a man with a family, or attends services everyday — is not the issue – if such were the case..

Ric undertand the economy indeed.

#6 Comment By Rosemary On November 9, 2017 @ 10:02 am

EliteComm – Ross was not elected, and lots of American teachers and cops, etc. are also benefiting from being stockholders in those corporations who hold funds offshore. I do think shareholders are missing in action.

#7 Comment By Wizard On November 9, 2017 @ 11:04 am

The last thing I want to see is the government glomming onto more money. If paying for infrastructure maintenance and repair is important (And I’m certainly not arguing it isn’t.), why don’t we divert a few of the billions we’re pouring down the “Defense” rathole? I’m in favor of a strong national defense as well, but our current defense budget is a bloated, pork-laden mess. Done with any common sense, it could be cut substantially without endangering the nation a bit. If that means we dial back on playing Team America World Police, I’ll call that a feature, not a bug.

#8 Comment By EliteCommInc. On November 9, 2017 @ 3:39 pm

“Ross was not elected, and lots of American teachers and cops, etc. are also benefiting from being stockholders in those corporations who hold funds offshore. I do think shareholders are missing in action.”

Ah,

This is a long running narrative of mine. Another doozy that keeps me in the weed. I usually include appointed official as well. In other words, almost no one in a federal post that is involved in overseeing financial services of any kind.

It is by definition a conflict of interest. This not about being against the rich. It’ about what it means to serve the country impartially. And what has been uncovered about our political class and their tend to serve financial interests, for the benefit of the same – would gaga a pig.

We pay them a salary, should that not be enough — then maybe they shouldn’t be in office. Public service is public service.

This is not Rome nor would we want it be.

#9 Comment By EliteCommInc. On November 9, 2017 @ 3:41 pm

‘and lots of American teachers and cops, etc. are also benefiting from being stockholders in those corporations who hold funds offshore.’

I understand, my advance is to policy makers.