Former US President Bill Clinton.

The denouncing by US politicians of alleged offshore tax evasion as a vote catcher could be about to backfire on one of the candidates in the current race for the Democratic presidential nomination.

In recent weeks, reports from the USA suggest that the fight between the two hopefuls, Hillary Clinton and Barack Obama, has included a number of robust, vocal attacks on the use of the Cayman Islands by US citizens and US companies to avoid paying federal taxes.

Senator Clinton’s views on the matter date back to a statement made in 2004, when she was a New York senator. In it she expressed a desire to close “loopholes,” which allowed “people who create a mailbox, or a drop, or send one person to sit on the beach in some island paradise” to claim that action as the creation of their offshore headquarters.

In the increasing bitter, down to the wire, struggle for the Democratic candidacy, the media and Senator Obama have both now latched on to information that shows former president Bill Clinton has a substantial financial stake in three Cayman Islands-registered investment entities.

The investments, with Yucaipa Companies, a Los Angeles-based holding company that was founded in 1986 by its billionaire chairman, Ronald Burkle, are believed to offer the former president a fairly risk-free potential yield in the order of tens of millions of dollars.

At issue is how the money should be treated for taxation purposes.

Although ultimately former president Clinton will have to pay US taxes on income earned through the funds, experts point out that, because there is no domestic taxation system in the Cayman Islands, the way the funds are financed could be used to minimise tax liabilities incurred.

Former president Clinton is reported to have had a long, and successful, business relationship with Mr Burkle, who is also reported to be a close friend of the Clintons, with the former president acting as an advisor to Yucaipa.

The crucial, and as yet unanswered question, is whether the money in the funds represents a salary, taxed at a potential high of 35 percent, or equity compensation, which could only attract 15 percent taxation.

Senator Clinton’s Senate disclosures report only confirms, as is legally required, that her husband earned in excess of US$1,000 from his relationship with Yucaipa.

The issue is now being forced by Barack Obama, who has made his 2000-2006 tax returns public and challenged Senator Clinton to follow suit.

According to observers, implicit in this challenge is the suggestion that there is material in the Clinton’s tax returns that they are not keen to make public. One of the things the returns could reveal is how money from the offshore investments is being treated.

However, there is no legal requirement for presidential candidates to release any financial information and, while pundits in the USA are pressing the issue on the grounds that voluntary disclosure shows a clear commitment to openness and transparency in government, some observers suspect more cynical motives may be in play.