This article is a follow up to a recent article on Secret Bank Accounts. Accounts such as these are also known as:

Secret Offshore Bank Accounts
Anonymous Accounts
Swiss Bank Accounts

How it works

You place your money with someone offshore. They declare that the money is theirs, and you deny that the money is yours. The money grows tax-free, and your creditors can’t get it since you will deny that it exists.

The Problems

Whoever you’ve given your money disappears with it, or will not give it back, and you can’t go to the authorities for fear of revealing that you have committed tax evasion. Or,

Whoever you’ve given your money to not only keeps your money, but actually extorts additional money out of you, which you pay so that they don’t reveal that you have committed tax evasion.

Frequency

This happens ALL THE TIME. Every day some sucker gets off his cruise liner at some offshore center, walks over to the nearest offshore service provider, says "I want a trust and a secret bank account" and then hands over his money to them. And, about once a month, a publication such as Offshore Alert or a website that deals with scams will run a story about how an offshore service provider disappeared with their clients' money.

We wish that we could find a statistical breakdown of how much money has disappeared by this process. Unfortunately, we can't because the secretive nature of these transactions means that there is no reporting upon which such statistics could be based. However, it is estimated that, worldwide, it is in excess of more then US$100 million annually.

Commentary

It is easy to get suckered in by offshore service providers, since most of the major offshore banks encourage their customers to have secret accounts because there is a "Hide the Money" atmosphere offshore. They will show you the laws of the offshore jurisdiction (structured just for this very purpose) and tell you that there is "no way" that the IRS could ever find out what you have done.

However, the catch is that for this to work you can’t declare that you have an interest in the account or report any interest earned on the account. This means that you are committing tax evasion, which is a felony. This also means that if the offshore service provider keeps your money and refuses to give it back, you are flat out of luck, because you can’t go to the U.S. government to complain, and the government of the country where you placed your money will probably protect the offshore service provider more than you (after all, it is bad business if it admits that an offshore service provider was embezzling money). In short, you’re screwed. What makes it even worse is the offshore service provider could embezzle even more money out of you by telling you that they will turn you in to the IRS (and send you to prison and ruin your life) if you don’t cooperate.

Solution

The solution to all of this is to JUST DON’T DO IT! Don’t ever trust your money to anybody but yourself, or a well-regulated bank or trust company. And don’t try to hide your money from the IRS. Life is too short for the grief of worrying about this. Structure your affairs so that you are able to disclaim the money when creditors come knocking, but if you own it then report it to the IRS and pay your taxes on it. There are a variety of ways in which you can legally declare it to the IRS while at the same time keeping it from creditors, such as by forming an offshore limited partnership, and then keep it in a respected and regulated offshore bank or trust company.

Because, should you hide your money, the most likely thing to happen is that your money will be hidden from you.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.