A recent study takes a fascinating look at what drives high-asset individuals to invest in offshore accounts.
In a recent study published by Public Library of Science (PLOS) One, researchers from Dartmouth College took a look at factors that spur financial flight to offshore financial havens of varying opacity. The research team used the Offshore leaks dataset, a publicly available resource related to the Panama Papers and the Paradise Papers, from 2016 and 2017, respectively. These document troves were the product of anonymous individuals who leaked data to the International Consortium of Investigative Journalists (ICIJ).
Tax evasion … or tax avoidance?
In scrutinizing the dataset, the study authors found that all the individuals associated with the document leaks had two things in common. As the study noted, “They are extremely wealthy and they have something to hide,” including most of the world’s approximately 3,000 billionaires. The aim was to discern some of the strategies and influences that may drive wealthy individuals in 65 countries to hold assets in foreign bank accounts and opaque secrecy jurisdictions around the world.
Findings of the study include:
- A main finding of the research is that civil justice in the home country of a wealthy individual is one primary indicator of whether and what kind of “concealment strategies” and blacklisted jurisdictions may be used to hide or grow wealth. The study authors define lack of civil justice as a lack of general accessibility to legal remedies. The authors note, “This inaccessibility may be due to problems of cost, political bias, discrimination, unreasonable delays or other factors. In such conditions, elites seem most concerned with disguising their connections to their own wealth, perhaps due to fears of confiscation.”
- The paper also suggests that an increase in corruption in the home countries of the wealthy triggers a diversification of money and assets into legitimate offshore tax havens as well as secrecy jurisdictions. The study explained that the core reason for diversification is fear of being identified with significant wealth, so “They spread their wealth over numerous offshore centers so that an incursion on one asset does not affect the others. This confetti-like scattering is a common secrecy strategy for terrorist cells and financial fraudsters.”
- Not surprisingly, the research suggests that when legal stability is regained in home countries, the ultra-rich may turn to blacklisted secrecy jurisdictions or pursue greater diversification. Plainly stated, the authors wrote, “As a society becomes better at ensuring the security of persons and property, the more its wealthiest members turn to the offshore financial system. This is consistent with economic research showing that elites from Scandinavia and elsewhere in northern Europe make surprisingly common use of offshore accounts to escape high tax rates and ruthlessly efficient regulatory enforcement.”
If you are looking abroad for diversification, opacity and financial security, speak with an experienced tax lawyer for guidance on options that address your strategy while maintaining compliance.
Navigating offshore reporting? Get expert legal help
Offshore reporting can be complicated. If concerned about your required reporting or whether your offshore tax haven is a legit or a shell game, the tax attorneys at Robert J. Fedor, Esq., L.L.C. can help. Contact us at 440-250-9709 or set up a consultation for reliable counsel. We offer services to clients in Northeast Ohio, Chicago, New York, and internationally.
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