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.
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
"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. …