By Alexandra Marks, writer of The Christian Science Monitor
The Christian Science Monitor
Once the shadowy tax havens of mafia bosses and global jetsetters, offshore banking operations are going mainstream - thanks in large part to the Internet. With the click of a few computer keys, anyone can set up a corporation in the Caymans, a trust in the Cook Islands, or a bank account in Barbados.
Much of it's perfectly legal, although law-enforcement authorities still consider it highly suspicious. Nonetheless, more and more Americans are doing it: from a doctor protecting his savings from an onerous malpractice suit, to an estranged husband hiding assets in a potentially messy divorce, to an investor gambling on high-risk offshore mutual funds. Then there are the traditional tax dodgers.
No one knows exactly how many Americans have gone offshore because the jurisdictions' strict secrecy laws make it easy for individuals to duck US authorities. But experts say the growth has been "dramatic," particularly in the past five years. And more and more of it is legitimate. The number of people actually reporting offshore accounts to the IRS - something rarely done in the past - has jumped almost 25 percent in the past three years alone. They now number close to 200,000. "It used to just be for the millionaires, but now ... it's not," says a senior staff member of the House Banking Committee, which has just asked the General Accounting Office to investigate the growth in offshore banking. Reasons for the jump are varied. Some experts point to the ease with which Americans can now buy and bank on the Internet. Others blame the litigious nature of American society. "People don't think they'll get a fair shake when they do get their day in court," says Denver lawyer Barry Engel, one of the pioneers in creating offshore-protection trusts. "In the words of one of my clients who's a litigator: 'I don't want somebody to do to me what I do to people all day long.' " And then there is the simple desire for the kind of privacy and confidentiality an offshore banking center provides. "I think people are getting fed up with Big Brother peering into every aspect of their lives," says Anthony Ginsberg, publisher of Offshore Outlook, a trade magazine based in Los Angeles. Dark underside But law-enforcement officials warn offshore banking still carries a dark underside. Because there are few regulations and strict secrecy laws, the system is ripe for fraud, abuse, and money laundering. Americans who use it can easily be duped. And unless they get expert legal advice, they can also run afoul of US tax laws that impose strict penalties for not reporting offshore financial activity. "If there's no punishment for going offshore, why should anyone stay onshore where they have to pay taxes and live by the rules?" asks Jonathan Winer, an assistant secretary of State for narcotics and law-enforcement affairs. "That's the problem policymakers all over the world are facing." A conservative estimate puts $5 trillion in banks, mutual funds, and trusts in the world's 35 international offshore banking centers. These range from European states like Ireland and Luxembourg to exotic Caribbean islands like the Caymens and Antigua. All have no or low taxes, flexible regulations, and, quite often, strict secrecy laws designed to attract capital. Initially, it was the very rich, international spies, drug dealers, and thieves who took advantage of the tax havens and their secrecy. But as the economy's gone global, corporations have increasingly used them to stay competitive. In fact, most offshore money now comes from international companies setting up subsidiaries in low-tax, low-regulation countries to increase their profits and flexibility in the fast-moving global market. …