Piercing the secrecy of offshore tax havens … A New York hedge fund manager allegedly swindles $12 million from a prominent Baltimore family. An Indiana couple is accused of bilking hundreds of customers by charging for free trials of cosmetic products. A financial manager in Texas promises 23-percent returns but absconds with $33.5 million of his investors’ money in a classic Ponzi scheme. – Washington Post
Dominant Social Theme: If people are placing money offshore they are probably crooked and need to be brought to justice.
Free-Market Analysis: We wrote about this Saturday in an editorial but want to return to this topic today – and this Washington Post article gives us the opportunity to do so.
Our contention is that what is seemingly a coordinated attack on the offshore industry is no coincidence. Around the world suddenly a combination of tax amnesties and government attacks are making it harder and harder for bank secrecy to prevail.
The argument – one cultivated by two years of Occupy Wall Street propaganda – is that those who “hide” money offshore are not paying their “fair share.”
The individuals involved are often moderately wealthy and ironically may be supporters of the regulatory democracy that has now turned on them and is pursuing them viciously. Here is more from the article:
The existence of the trusts surfaced during a joint examination of the offshore world by The Washington Post and the International Consortium of Investigative Journalists, a D.C-based nonprofit news organization. ICIJ obtained 2.5 million records of more than 120,000 companies and trusts created by two offshore companies, Commonwealth Trust Ltd. (CTL) in the British Virgin Islands and Portcullis TrustNet, which operates mostly in Asia and the Cook Islands, a South Pacific nation. The records were obtained by Gerard Ryle, ICIJ’s director, as a result of an investigation he conducted in Australia.
Many people use the offshore world for legitimate purposes, for legal tax shelters or to smooth the way for international trade. Overseas havens vaulted into public consciousness last year with stories about Republican presidential nominee Mitt Romney’s accounts in the Cayman Islands. Recent coverage of the Cyprus banking crisis has thrust the issue back into the spotlight.
U.S. citizens are permitted to move money offshore as long as they report their account information to the Internal Revenue Service. But there have long been concerns that much of the money is not reported and bleeds tax revenue from governments worldwide. Recently, aspects of the offshore world came under assault after whistleblowers alerted the IRS to thousands of unreported U.S. accounts in Swiss banks, resulting in an amnesty offer to violators who paid billions in fines to the U.S. government.
The records reviewed by The Post and ICIJ expose how havens in the South Pacific and Caribbean in some cases have become sanctuaries for individuals seeking to conceal their activities from investigators and investors.
Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.
We can see from the thrust of this Post article that the idea being put forward has to do with criminality. If people are hiding money offshore, they are likely doing so with criminal intent.
There are a number of things wrong with this supposition, however. Even if one starts with the idea that people ought to pay their “fair share” of taxes, no one can probably ascertain what is “fair.” Certain facts can be stated, however.
One fact is that taxes keep going up and that wealthy people are paying a great deal of money to service taxes. As taxes continue to climb, people seek relief legally or illegally. The mainstream media, in reporting on this offshore gambit, seems to be ignoring the larger issue of the taxes themselves and their exorbitance.
Another glaring hole in the conversation is the question of why people have to pay taxes at all. In this era of central banking, the big central banks can print all the money they want to and maintain there is no problem in draining it, either. So why not let central banks print money – if that is the consensus of the electorate and political leaders?
A third point to be made is that not all offshore money is illegal by any means and some of it that may be construed as illegal is merely contravening reporting requirements but is not illegally generated in the larger sense.
None of this is really examined in the Post article, however, which is more or less a summary of what is taking place now and a kind of triumphant explanation of how the offshore industry is beginning to crumble.
We could share in the glow of this “triumph” if we felt it was really good news, but we don’t. So long as governments are repressive and confiscatory, money will always seek an escape. So the “crackdown” in the long run is futile if policies don’t change.
Additionally, if the crackdown is temporarily successful, this will only make it worse for people who have no ability to place money overseas. If government officials are aware that money has no place to hide, they will inevitably tax more of it.
Within this scenario, it is the middle class itself that will receive the brunt of the beating. The same middle class that has imbibed the lessons of Occupy Wall Street and is unsympathetic to the crackdown taking place now needs to realize that IT is the ultimate target.
The article concludes with the following statement:
“Once your investment ends up in a place that bills itself as a secrecy haven, your money is offshore and you have no legal standing to go get it,” said David L. Peavler, an associate regional SEC director in Texas who worked on the case. “You’re basically putting your faith in another country’s process and there’s a high degree of risk. You have to ask yourself, why in the world would you send your money there?”
The answer is that people are increasingly desperate. They see no hope that their spendthrift governments are going to change or that confiscatory tax rates are going to lessen. They seen no evidence of a change in central banking policies or a diminution of money printing that continually robs their money of value.
Most importantly, they see Western governments generally getting more repressive and confiscatory – which makes people of even moderate wealth a target.
Moderate these trends and you will gradually diminish the offshore industry. Instead, Western governments – in what only can be seen as a coordinated attack – are using legal and extra-legal (criminal) means to gain access to names of citizens who are maintaining offshore accounts.
Governments that practice unjustifiable tax confiscation compounded by inflationary money printing and wealth distribution – and then use virtually criminal means to obtain the names of those citizens trying to escape from these regimes – are acting in despicable ways themselves.
Those who look on approvingly or believe that the extra-legal actions now being taken to attack the offshore industry won’t eventually be applied domestically in some form as well are likely fooling themselves.
There are still many great banking options overseas though and Sovereign Man’s offshore banking guide is a great start.
Ask not for whom the bell tolls …