Offshore accounts. IBCs. Walking trusts. Financial institutions have plenty of names for the places where the wealthy now hide their money from the IRS. They just don't call it cheating. " Trillion Dollar Hideawayby Ken Silverstein /November 01
"You've done just the right thing," Colin Honess, a garrulous, pleasant man with a big white beard and matching hair, tells me. "If you're going to put your money away, you want to make sure it's in good hands. And this is a very good, safe place to put your money."
It's a steamy mid-July morning and we're sitting in Honess' office at Jerome E. Pyfrom & Co., a law firm in Nassau, capital of the Bahamas, one of the world's premier "offshore" financial havens. Pyfrom & Co. specializes in setting up secret bank accounts that allow people to hide their funds -- from tax collectors, law enforcement authorities, creditors, or anyone else who might have a claim on their cash. Some experts estimate that more than $5 trillion is now hidden in offshore accounts. I've come to the Bahamas to investigate what kind of financial services are available to wealthy Americans eager to bury their riches abroad. Since my own resources are modest, I tell Honess I've grown rich as a NASDAQ trader and am sick and tired of being "taxed to death" by the U.S. government. How can Pyfrom & Co. be of assistance? I ask.I'd initially contacted the firm via email and learned there was no need to actually visit the Bahamas to open my clandestine account; I could submit a few pages of paperwork by mail, and Honess would handle the rest. But now, sitting across from him in his office, I explain to Honess that I felt it prudent to take a firsthand look.
He hands me a packet of information, including a detailed report that lays out the advantages of stashing one's money in the Bahamas. "Imagine a company which is not required to file any public notice of who its officers and directors are," it begins. "No need to reveal the identity of its shareholders; no need to file any financial statements or keep any accounts. Imagine that such a company can be incorporated in an economically and politically stable country which is a member of the British Commonwealth and which imposes no income, capital gains, or inheritance tax. 'Pinch me! I'm dreaming!' you may be saying if you have never been introduced to the Bahamian International Business Company."
For the would-be tax evader or money launderer, International Business Companies, or IBCs as they are generally known, are indeed a dream come true. These shell companies often conduct no real business -- they are simply used as front operations by people trying to hide their wealth. A 1998 United Nations report says that IBCs "have few commercial or financial justifications, except to conceal the origin and destination of goods in international commerce ... and to evade taxes by moving profits and assets out of the reach of the tax collector."
Not surprisingly, business is booming at Pyfrom & Co. The firm's clients come mostly from the United States and Europe, but just that morning Honess had fielded a call from Singapore. Setting up an IBC with the company, he explains, is fast and cheap. All that's required of me is filling out a one-page form and providing a photocopy of my passport and driver's license. The entire incorporation process -- which costs $1,000 plus annual renewable fees of $750 -- can be completed within 48 hours. I can then open a bank account in the name of my IBC. To help me avoid placing my money in the local offices of a U.S. bank, Honess suggests a branch of Ansbacher, a South African financial firm that is "a little easier to work with."
The beauty of the whole arrangement, Honess emphasizes, is that Bahamian bank secrecy laws make it virtually impossible to determine who owns an IBC. Incorporation papers filed at the Registrar General's office, conveniently located just half a block away, disclose only an IBC's local office -- Honess suggests that his home address could serve that purpose -- and its agent, who could be another employee of Pyfrom & Co. or another Nassau lawyer or accountant. My paperwork and identification papers, as well as the names of my IBC's directors and officers, would be securely guarded at his firm's office. Local law makes it a crime to reveal account information without the owner's permission, unless under order from Bahamian courts, and Honess can recall the latter happening only a handful of times during the past decade -- and only in cases involving notorious drug dealers or other high-profile criminals.
Now we come to a delicate matter. Setting up an offshore account is perfectly legal, but it's a crime for an account holder not to disclose that information when filing a U.S. tax return. Honess calls the obligation to report hidden wealth a "fine line" and a "question of conscience." If I fail to do so, he predicts, there will be no negative consequences. "The IRS would need to spend a huge amount of money to pursue the matter and it's unlikely that they'd succeed," he says. "You're no big-time criminal, so it would hardly be worth it. Your NASDAQ investments were probably far riskier than this."
With that, our conversation comes to a close. In less than an hour, I've done everything necessary to set up a secret bank account, short of filling out the one-page application and turning over the $1,000 fee to Jerome E. Pyfrom & Co.
During the early part of this century, American mobsters began buying up legitimate businesses in order to explain the origins of their ill-gotten loot. Laundries and car washes were among the most popular choices; hence, the birth of the term money laundering. At roughly the same time, the Bolshevik Revolution and political instability across Europe caused the continent's elite to seek a safe haven for their assets. Much of their money poured into Switzerland, which emerged as the first capital of "private banking." The industry provides specialized financial services to wealthy clients -- serving, in many instances, as the legal cousin of money laundering.
Today, the practice of hiding wealth has reached epidemic proportions. Much of the money shipped abroad has its origins in arms dealing and drug trafficking. Another major source is loot plundered by corrupt government leaders, such as former Indonesian president Suharto. A growing portion of offshore money, however, is legal in origin, moved abroad by the super-rich -- often through major U.S. banks -- in order to evade taxes.
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