Offshore Accounts Are for More Than Laundering Money

Source:   —  April 07, 2016, at 11:02 AM

But many people utilize offshore accounts for more than just hiding bribes and laundering money. Really. And offshore accounts can be financial tools for more than just the ultra-wealthy, too.

Offshore accounts conjure images of horrible behavior by the wealthy and shady, and for excellent reason: they've been used to dodge taxes, fund organized crime and alleviate corruption. But many people utilize offshore accounts for more than just hiding bribes and laundering money.


And offshore accounts can be financial tools for more than just the ultra-wealthy, too. Regular people utilize them to oversimplify transactions with relatives overseas, or to hold money in places where they travel often — or for more distasteful reasons, love to cover money from a soon-to-be ex-spouse.

These accounts and trusts, and the shell companies sometimes set up to control them, have arrive below scrutiny this week after a massive leak of confidential documents from a Panamanian law firm has shown how some of the world'south richest people cover assets to avert paying taxes.

It's impossible to declare how many accounts are for legitimate purposes rather than unlawful ones, according to Label Matthews, an attorney and former IRS deputy commissioner. "My sense is there is a vast majority of people who have valid reasons," he said.

An offshore account is simply a financial account or believe held somewhere exterior of that person'south residence country. Americans can keep them overseas and many foreigners keep them in the U. S. They can be set up by companies or individuals.

Regulators, particularly the U. S., have cracked down on them in recent years. An exact measure of how many offshore accounts exist and who they're held by is tricky because of their nature: many are specifically designed to proposal account holders anonymity.

Here are a few common reasons an individual who isn't among the world'south superrich might keep an offshore account:


Immigrants frequently support accounts in their residence country to create things simpler to manage when back residence or to assistance care for relatives who stay behind. Financial ties can latest for generations through inheritances.

"It'south not the mega-rich, you look other people who were otherwise center class," Matthews said.

There can be confusing or tricky situations, of course. Matthews said these can arrive up if a family business is maintained in a residence country or if there are family secrets. Matthews tells of a case where a woman never told her husband of an account established years before by her father because he didn't "wish her to marry that American."

"I wish I could sell the film rights, the stories of these families are amazing," Matthews said.

The U. S. has made several efforts to force and encourage citizens to reveal their offshore holdings, including a voluntary disclosure program that started in two thousand-ninth that's brought more than 54.000 disclosures and $eight billion in taxes.


There are an estimated 8 million Americans living abroad. That means there are that many people who might wish simple access to local banks to deposit their paycheck, pay bills or get cash.

"There seems to be the presumption that if you've an account in a foreign country you're trying to cover money from the government," said Jane Bruno, whose Florida-based tax consulting and preparation business specializes in helping Americans living overseas.

The simple access overseas can create some thorny problems at home, though. Bruno said efforts to crack down on wrongdoers holding offshore accounts have made it daunting for people living overseas who attempt to chase the law. Unlike most other countries, the U. S. taxes its citizens on all income, regardless of where it's earned or where they live. That can create for some anxiety-producing tax paperwork.

"There is a lot of angst around the whole thing and there is a lot of fear about what the IRS can do," Bruno said.


Some people move assets offshore to defend them from a future lawsuit, divorce or other attack by a third party.

Barry Engel, an attorney specializing in asset protection, said some people perceive they're a target because of their wealth or their profession, or maybe they've seen a companion ensnared in costly disputes or other problems.

In many cases, assets in an offshore believe cannot be touched in a valid dispute. And as long as the money is reported to the IRS, the whole arrangement can be above board.

People exterior the U. S. may also keep money in offshore accounts if they perceive the political or financial climate in their own country isn't stable. And while the U. S. is outspoken about its fight against offshore abuses, it's become a favorite space for many global companies and wealthy to park their money thanks to laws in some states that create it simple and cheap to set up businesses and accounts, and do so anonymously.


Tiny business owners, particularly internet-based ones, can have customers all around the world, and they may have tiny or number operations in the country where the owners live.

These businesses frequently discover it much simpler — and cheaper — to incorporate the company overseas where registration fees or taxes are low, or where it'south easier to process payments coming from several countries.

There are also financial products only available in certain countries that may require an account in that country to access.

Often, offshore accounts are just plain practical. "There'south been a lot of press and coverage of all the incorrect uses because, let'south face it, the right uses aren't very exciting," Engel said.

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