When is a big financial story an unsurprising financial story? When it turns out that people from corrupt and repressive countries are sneaking their money offshore to keep it hidden.
The world today is tearing into a huge leak of Panamanian legal documents unearthed by a German newspaper and shared via the International Consortium of Investigative Journalists.
These have caused a political scandal in Iceland, among other places, because according to the report the prime minister of that country turned out (via a secret offshore company set up in Panama) to be a creditor to several Icelandic banks. That’s ordinarily not a problem (other than not being able to get your money back in the case of Iceland at that time). But it is certainly awkward if you happen to be negotiating on behalf of the government against the creditors (i.e., against yourself).
There are also figures in the United Kingdom said to have used offshore companies.
Those were the big news-making events, even though people from 51 countries (plus the Palestinian Authority) were reported to be using Panamanian companies set up by a particular law firm.
The reason the people from U.K. and Iceland led the news with this leak? Our money is on the theory that they are the only ones from countries in the report that are the among the world’s 20 least corrupt countries, according to the latest Transparency International Corruption Perceptions Index.
About half the countries that make it into the Panama Papers rank as less corrupt than the median Transparency International corruption ranking for 2015. But that still means only that they are perceived to be less corrupt than China, Colombia and Liberia.
A better proxy for where to expect offshore activity among the powerful may be the Freedom in the World rankings from Freedom House. Iceland and the U.K. are rated as “free,” but just 18 of the 51 countries represented in the Panama papers were also seen to have enough political rights and civil liberties to merit the “free” rating. The rest of the countries represented in the Panama Papers were “partly free,” “not free,” or “the worst of the worst” (Saudi Arabia, Syria and Sudan).
While the Panama Papers is careful to underline that the mere use of an offshore company may be completely legal, the ICIJ and everyone else knows that offshore companies can also be used to hide stolen money or to evade creditors.
It’s the evasion from creditors that usually gets our firm involved, but we have the following advice to all but the highest net worth clients:
- It can be expensive to set up a complex offshore regime, so unless you are looking for money in the millions, it may not be worth the similar charges to 1) find the money and 2) go to court in a tax haven to get it back.
- For Americans, we advise looking “offshore” in the United States first.
In the U. S. it’s very cheap and easy to establish a limited liability company that can be hard for creditors to find. This company can hold cash, real estate and other assets just as easily as an offshore one can. We have written about these repeatedly on our other blog, The Divorce Asset Hunter.
If you pay an incorporator to set up a Delaware company and have that company based at the office of a friendly lawyer ( and not at any address linked to you) it can be very difficult to track such a company back to its beneficial owner. Cracking it with a court order is a lot easier and cheaper than going to court in the Caribbean, but just finding these companies set up by someone who knows what he’s doing can take a lot of work.
It may not have the glamor of Panama, the Cook Islands or the Caribbean, but for someone looking to hide $500,000, a U.S. LLC with an innocuous name can get the job done.