Forget the mattress: how to hide riches from the law

[PARIS] If you are rich and unscrupulous, how do you hide your ill-gotten billions, evade taxes and steer clear of the law at home?

A vast leak of 11,500 confidential documents from a Panama-based legal firm, Mossack Fonseca, gives a rare glimpse into how some of the wealthiest people in the world use offshore financial bolt holes to conceal billions of dollars in assets.

At the heart of any strategy is the shell company, created to give the appearance of being a legitimate business when its only purpose is in fact to stash away assets while keeping the real owner's identity hidden.

Adding a further cloak of anonymity, many schemes rely on trusts. You hand over the legal title of your wealth to a trustee, who then manages it on your behalf.

To complete the package, place it all offshore where your home country's laws do not apply and the authorities will find it hard to track down your wealth.

"There are hundreds of thousands of trusts in the world," said Transparency International France president Daniel Lebegue, based not only in Panama but also in Guernsey, the Bahamas or the British Virgin Islands, Foundations, which can be set up to manage huge riches with opaque structures, also are often used for the same purpose, including in states such as Liechtenstein, Mr Lebegue said.

To shift your riches around, one of the favoured tools that crops up in the Panama Papers is the 'bearer share'. Unlike ordinary shares, a bearer share has no name written on it and requires no identification to cash in.

The use of offshore entities is not illegal in itself. But to remain legal, assets kept offshore usually must be declared to the tax authorities in your country of residence.

Not everyone follows that rule.

"Behind these opaque structures there is a lot of black money that has come from criminal activities," such as drug trafficking, organised crime or terrorism, Mr Lebegue said. Other sources for the assets include corruption and "grey money" derived from tax evasion, he said.

"But these accounts may also include money from legitimate activities such as financing for aircraft or shipping, for reason of administrative simplicity," Mr Lebegue added.

Bearer shares are not illegal, either.

"If a country's legislation allows bearer shares then by definition it is not illegal," said Pascal Saint-Amans, who leads the fight against tax havens at the Paris-based Organisation for Economic Cooperation and Development.

"On the other hand, it goes against international norms. Not the bearer share itself, but not knowing who is behind it."

The Group of 20 advanced economies has backed a series of tax crackdowns in 2009. That has led to a weakening of international banking secrecy, with 19 countries committing to automatically exchange clients' financial information by 2018.

The OECD has also launched a programme to close loopholes that allow multinationals to shift their declared assets around the world and minimise tax payments.

"The G20 has agreed on the goal and the principle," said Mr Lebegue. But not everyone has taken the measures to enact them, he added.

Internationally, countries struggle to eradicate opaque financial structures, partly due to a lack of cooperation by certain jurisdictions and partly due to the complexity of the techniques used.

"Fraudsters adapt," said Antoine Bozio, head of the Paris-based Institut des Politiques Publiques, a public policy institute.

"The fight against tax fraud depends on financial techniques," he added.

According to a European Commission list published in June, some 30 jurisdictions are judged to be insufficiently cooperative in the fight against tax evasion. Among them are the Caribbean islands such as Anguilla, Antigua-and -Barbuda, the Seychelles, and Liechtenstein. The OECD lists 38 jurisdictions that should do better.

One country is the focus of broad criticism: Panama, considered a black sheep in the anti-corruption fight because it hosts some 100,000 offshore companies and because of its reticence in revealing the true owners of bearer shares.

"Black money is concentrated in those jurisdictions that are the most opaque," said the OECD's Mr Saint-Amans. "And the most of opaque of all of them is Panama."


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