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Where Do the Rich and Famous Hide Their Money?

Written by Keith Kohl
Posted March 22, 2017

The super-rich hide their billions in "safe havens" that are part of an increasingly murky world of offshore banking — but it’s not always illegal, it’s not always for the reasons you might think, and it’s not always on an island that is all banks and beaches.

But it is easy — you can even make a shell company for your cat.

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Source: The Conversation

Four Reasons to Stash Your Cash

Just because you’re offshore doesn’t mean you’re a criminal. Anyone can set up companies or trusts offshore for purposes of business finance, mergers and acquisitions, estate or tax planning — all of which are legitimate. Where it gets murky is with shadowy shell companies and other entities using these setups to evade taxes, hide illicit wealth, or fund terrorism.

The Panama Papers showed us that over 200,000 international shell companies were formed for over 14,000 clients, including over 140 politicians and their families, over a dozen national leaders, and a handful of celebrities. Overthrown Egyptian President Hosni Mubarak, Libya’s late leader Muammar Gaddafi, Syrian president Bashar Assad, and the late father of former British Prime Minister David Cameron all featured in the Panama drama.

Even Jackie Chan turns up on the "Panama Papers" as having at least six offshore companies managed through a Panamanian law firm. FIFA boss Gianni Infantino and soccer superstar Lionel Messi also make an offshore appearance.

Music tycoon Simon Cowell also showed on the papers as the sole shareholder in two British Virgin Islands (BVI) companies — but there’s nothing fishy about this. He was planning to purchase land in Barbados in celebrity holiday central, but never used the offshore companies.

They aren’t illegal, but the cat is certainly out of the bag now, so coveted secrecy is no longer an option.

So why head offshore? Here are four key reasons:

#1 Embezzlement, Money-Laundering, & Terrorism Financing

A handful of colorful world leaders have used offshore safe havens to hide and launder money they effectively stole from their own governments or earned illicitly while in office.

A case in point would be the family of overthrown Egyptian leader Hosni Mubarak, whose son featured in the recent "Panama Papers" leaks that gave us our first real glimpse into the scale and scope of this murky banking world. Mubarak, who was acquitted in early March of charges of killing 900 protesters during the 2011 Arab Spring, was grooming his younger son Gamal for the presidency before the regime was overthrown. Gamal’s brother Alaa featured in the Panama Papers, but both have been acquitted of charges of embezzling millions of dollars in state funds used to renovate their palaces.

Russian President Vladimir Putin does not appear in the Panama Papers, but members of his high inner circle do. Cellist Sergei Roldugin — a close family friend of Putin — is said to have moved $2 billion through a web of offshore entities. Of course, the Russian version of this story is that the U.S. organized the Panama Papers leaks to discredit Putin, because there are few Americans on it.

If fleecing your country or simply laundering money isn’t a reason to hide offshore, terrorism financing may be. Even the Islamic State is getting savvy enough to start investing in the stock market and financing "offshore." All those earlier oil revenues need to grow, after all — and not out in the open.

The Panama Papers files name at least 33 individuals and companies blacklisted by the U.S. because of their business dealings with entities like Hezbollah, North Korea, and Iran.

But ISIS isn’t treading on any new ground here. It needs only a minute to form a shell company. Ask famous Russian arms dealer Viktor Bout, who used shell corporations to anonymously supply terrorist groups the world over. Tanks and shoulder-fired missiles — no problem.

Panama may also backfire on Trump. Ricardo Martinelli, the ex-president of Panama who fled to the U.S. and is facing extradition on corruption charges, helped Trump launch his first international property.

#2 Tax Evasion

Remember The Wolf of Wall Street, and Leonardo DiCaprio’s character smuggling millions of dollars to Switzerland to deposit the money in an account and avoid paying taxes on it? It’s probably the best depiction of how this all works.

Today, we’re looking about $7.6 trillion in offshore tax havens, with an approximate 1.2% of the world’s population using them — and hiding 26% of the world’s total wealth. How much of it is illegal? By some estimates, about 80%. The other 20% are actually paying taxes on interest they are earning.

#3 When Divorce Gets Nasty...

The number one move in planning a divorce for the rich and famous is hiding wealth from a soon-to-be former spouse. When Russian mining magnate Dmitry Rybolovlev — the 14th richest man in Russia — divorced his wife Elena, she accused him of hiding money, sparking a global asset hunt.

Elena reportedly alleged that her husband, as well as the millions he had hidden offshore, had an offshore company used to buy and store $650 million in artwork. The hiding and subsequent hunt for assets has even been referred to as a "blood sport."

And nothing is off limits — cash is buried in everything from artwork to expensive rugs and ancient coins, making it almost impossible to find unless you want to spend millions to get to it.

#4 Privacy & Asset Protection

This one is important because there are reasons to desire privacy and to protect your assets, even if you aren’t fleecing a country, laundering money, or trying to hide wealth from your wife.

But those reasons are not legitimate if you’re a politician whose job description doesn’t allow for high-revenue moonlighting. The recent former prime minister of Iceland can attest to this. On April 5, 2016, he resigned over the Panama Papers, which showed that he had discreetly sold a stake in an offshore firm to his wife. The firm held investments in Icelandic banks, sparking mass protests in his home country and forcing his resignation.

But there are plenty of legitimate reasons for going offshore. Shell companies, which have no significant assets and are tricky to identify, are used for mergers, to hold assets during complex transactions, and to protect trade secrets. It’s a great way to protect yourself from creditors if you’re sued, which might seem cheeky but is legitimate.

Or maybe you just don’t want your extended family to know how much money you have — as simple as that.

Where the Super-Rich Hide Their Money

No one knows exactly how much money goes through the world’s offshore havens right now, but in 2010, it was a mind-blowing $21–$32 trillion built up in close to 140 black hole havens. But only 10 of these account for over 60% of hidden wealth.

And sometimes "offshore" is just a euphemism with an existential question mark, but it’s not always a physical location. It’s often a state of legal being run through a complicated network of arrangements.

You might be surprised to learn that Panama wasn’t even among the top 10 destinations for stashing cash, even before the leak. Panama is only in 13th place, and you might be surprised to learn that the U.S. is among the top five.

The Top 10 Offshore Financial Black Holes

#1 Switzerland: Super-secrecy sets Switzerland apart, and as of 2015, it was holding $6.5 trillion in assets under management — over half of which came from abroad. That means Switzerland controls 28% of the global cross-border asset management market.

#2 Hong Kong: While Hong Kong had only $2.1 trillion in assets under management as of 2015, putting it well behind Switzerland, it’s considered one of the fastest-growing venues and attracts "ultra-high-net-worth" individuals. Hong Kong and its hidden assets have China to thank for its ability to skirt transparency.

#3 U.S.: The U.S. has been fighting other countries over tax haven habits that allow U.S. citizens to evade taxes, but the reverse is not true. In fact, for foreigners this is one of the safest places to stash cash because a foreign government will get little cooperation from U.S. authorities when they’re trying to hunt down their own tax evaders and criminals. But for the most part, it’s popular because it has a lower tax burden than Europe — at least for the super-wealthy. It’s pretty easy to create a shell company in the U.S. Every year, some 2 million corporations and LLCs are formed in the U.S., without any documentation of identity at all. Fusion even shows us how one woman formed a Delaware shell company for her cat. The same can pretty much be done in Montana, Nevada, and Wyoming.

#4 Singapore: Singapore is another great place for corporate secrecy, and it held around one-eighth of the world’s offshore wealth as of 2015.

#5 Cayman Islands: This is the go-to for hedge funds and captive insurance companies, and it’s big on financial services, which represent the bulk of the island’s GDP. Here, secrecy rules, and it’s a potential prison term for anyone leaking — or even poking around for — confidential information.

#6 Luxembourg: Renowned for its super laissez-faire tax regulations, Luxembourg remains a popular asset haven, despite a few hiccups and one leak scandal. It’s got about $300 billion in secret banking assets and is the best haven in the Eurozone.

#7 Lebanon: While Lebanon has plenty of problems with stability, it does stand out right now because while the rest of the world is bowing a bit to the pressure of transparency, Lebanon is working towards even greater secrecy.

#8 Germany: Long known for taking in the cash and assets of dictators, organized criminals, and tax evaders, Germany has been under pressure to crack down on money laundering, but it’s still one of the best places to maintain secrecy.

#9 Bahrain: Surrounded by the rest of the oil-rich Gulf states, Bahrain is oil-poor and finds its commerce in "offshore" financial services. It’s super business-friendly, with no corporate income tax, personal income tax, or capital gains tax.

#10 Dubai: This Emirate is all about secrecy, and no one bothers asking questions. They know they won’t get answers even if they try.

Whether you’re a world leader, a martial arts actor, a music tycoon, a terrorism-funder, a billionaire politician, an oligarch making away with your country’s cash, or just a scared divorcee desperate to hang on to your Picasso, you don’t have to go all the way to Panama — America is just as good, and quite a lot easier.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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