Offshore accounts - Mystery

Who uses offshore accounts?

Most super wealthy people and multinational corporations — Amazon  , Facebook , McDonald’s and Nike , among others, were mentioned in the Paradise Papers — want to keep their money out of the U.S., and away from the Internal Revenue Service.

The vast majority is legit businesses trying to hide their money from the government because they don’t want to pay their fair share in taxes,”. “It’s a smart business move.” For example, Apple has moved billions of dollars to Jersey, an island in the English Channel where there’s a 0% corporate tax rate for foreign companies. Apple insisted in a statement posted online that the “effective tax rate” on its foreign earnings is 21%, and that the company “pays every dollar it owes in every country around the world.”

The same goes for very wealthy families, who sometimes move money into trusts in offshore accounts.“These people aren’t evading tax, at least that’s what their attorneys say,”. “They’re minimizing tax.”

How have these practices changed?

In the old days, people who wanted to stash money abroad would open personal accounts with a $9,000 deposit in various countries because transactions of $10,000 and above are supposed to be reported to authorities. Now, offshore accounts typically aren’t in an individual’s name. They’re opened under the name of a corporate entity.

Once commonly referred to as “tax havens,” the accounts are now known as “offshore financial centers.” Worldwide it’s estimated that companies’ use of offshore accounts costs governments $240 billion in lost revenue, according to the Organization for Economic Cooperation and Development.

Who else uses these tax havens?

In addition to monied families and legitimate businesses, offshore accounts are also favored by criminal tax evaders and money launderers. The accounts are often based in countries that have relatively lax requirements on what bankers must report to authorities. In some places, it’s easy to set up an account that’s linked to a corporate entity like a limited liability company, and never disclose who the person behind the LLC is. “Following the paper trail is very difficult,” To set one up, you’ll need a highly skilled lawyer.

Where are these accounts?

Though often linked in the popular imagination to the Cayman Islands and other sunny spots near the U.S. mainland, offshore accounts are all over the globe, in places like Cyprus — known as a popular spot for Russian money — the Seychelles, Costa Rica, Yemen and Lichtenstein, to name a few.

It’s getting a little harder to use them.

In 2010, the U.S. beefed up its laws to require bankers in many countries to report whether they are doing business with a U.S. citizen. Switzerland no longer offers its famed numbered accounts, and Austria doesn’t have completely anonymous accounts anymore.

However, “There are still places you can go to conceal assets. Now every bank all over the world is supposed to do their due diligence to identify who their client is and where the money is coming from, but obviously there are some countries where compliance is failing,”.

An offshore bank is a bank regulated under international banking license (often called offshore license), which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and transparency, accounts with offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to nonresidents on a big scale, can be referred to as offshore financial centres. Since OFCs often also levy little or no tax corporate and/or personal income and offer, they are often referred to as tax havens.

With worldwide increasing measures on CFT (combatting the financing of terrorism) and AML (anti-money laundering) compliance, the offshore banking sector in most jurisdictions was subject to changing regulations. Since 2000 the Financial Action Task Force issues the so-called FATF blacklist of "Non-Cooperative Countries or Territories" (NCCTs), which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing.

An account held in a foreign offshore bank, is often described as an offshore account. Typically, an individual or company will maintain an offshore account for the financial and legal advantages it provides, including:

• Greater privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
• Little or no taxation (i.e., tax havens)
• Easy access to deposits (at least in terms of regulation)
• Protection against local, political, or financial instability.

While the term originates from the Channel Islands being "offshore" from the United Kingdom, and while most offshore banks are located in island nations to this day, the term is used figuratively to refer to any bank used for these advantages, regardless of location. Thus, some banks in landlocked Andorra, Luxembourg, and Switzerland may be described as "offshore banks".

Offshore banking has often been associated with the underground economy and organized crime, tax evasion and money laundering; however, legally, offshore banking does not prevent assets from being subject to personal income tax on interest. Except for certain people who meet fairly complex requirements (such as perpetual travelers), the personal income tax laws of many countries (e.g., France, Malaysia, and the United States) make no distinction between interest earned in local banks and that earned abroad. Persons subject to US income tax, for example, are required to declare, on penalty of perjury, any foreign bank accounts—which may or may not be numbered bank accounts—they may have. Although offshore banks may decide not to report income to other tax authorities and have no legal obligation to do so, as they are protected by bank secrecy, this does not make the non-declaration of the income by the taxpayer or the evasion of the tax on that income legal. Following the 9/11 attacks, there have been many calls to increase regulation on international finance, in particular concerning offshore banks, tax havens, and clearing houses such as Clearstream, based in Luxembourg, which are possible crossroads for major illegal money flows.