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Hide Money in the US
World Economy

Hide Money in the US

Last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how the world’s wealthy elite can avoid paying taxes. His message was clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments. Some are calling it the new Switzerland.
After years of lambasting other countries for helping rich Americans hide their money offshore, the US is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the US is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota, Bloomberg reported.
“How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Peter A. Cotorceanu, a lawyer at Anaford AG, a Zurich law firm, in a recent legal journal. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”
Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

  Exploitation
The firm says its Reno operation caters to international families attracted to the stability of the US and that customers must prove they comply with their home countries’ tax laws. Its trusts, moreover, have “not been set up with a view to exploiting that the US has not signed up” for international reporting standards, said Rothschild spokeswoman Emma Rees.
Others are also jumping in: Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.
Trident Trust Co., one of the world’s biggest providers of offshore trusts, moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline.
Alice Rokahr, the president of Trident in South Dakota, and other advisers said there is a legitimate need for secrecy. Confidential accounts that hide wealth, whether in the US, Switzerland, or elsewhere, protect against kidnappings or extortion in their owners’ home countries. The rich also often feel safer parking their money in the US rather than some other location perceived as less-sure.

  Secret Accounts
No one expects offshore havens to disappear anytime soon. Swiss banks still hold about $1.9 trillion in assets not reported by account holders in their home countries, according to Gabriel Zucman, an economics professor at the University of California at Berkeley. Nor is it clear how many of the almost 100 countries and other jurisdictions that have signed on will actually enforce the new disclosure standards, issued by the Organization for Economic Cooperation and Development, a government-funded international policy group.
There’s nothing illegal about banks luring foreigners to put money in the US with promises of confidentiality as long as they are not intentionally helping to evade taxes abroad. Still, the US is one of the few places left where advisers are actively promoting accounts that will remain secret from overseas authorities.
For decades, Switzerland has been the global capital of secret bank accounts. That may be changing. In 2007, UBS Group AG banker Bradley Birkenfeld blew the whistle on his firm helping US clients evade taxes with undeclared accounts offshore. Swiss banks eventually paid a price. More than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay about $5 billion to the US in penalties and fines.
Those firms also include Rothschild Bank AG, which last June entered into a non-prosecution agreement with the US Department of Justice. The bank admitted helping US clients hide income offshore from the Internal Revenue Service and agreed to pay an $11.5 million penalty and shut down nearly 300 accounts belonging to US taxpayers, totaling $794 million in assets.

  Doubts of Money Laundering
The US Treasury is proposing standards similar to the OECD’s for foreign-held accounts in the US. But similar proposals in the past have stalled in the face of opposition from the Republican-controlled Congress and the banking industry.
At issue is not just non-US citizens skirting their home countries’ taxes. Treasury also is concerned that massive inflows of capital into secret accounts could become a new channel for criminal money laundering. At least $1.6 trillion in illicit funds are laundered through the global financial system each year, according to a United Nations estimate.
 Offering secrecy to clients is not against the law, but US firms are not permitted to knowingly help overseas customers evade foreign taxes, said Scott Michel, a criminal tax defense attorney at Washington, D.C.-based Caplin & Drysdale who has represented Swiss banks and foreign account holders.
“To the extent non-US persons are encouraged to come to the US for what may be our own ‘tax haven’ characteristics, the US government would likely take a dim view of any marketing suggesting that evading home country tax is a legal objective,” Daniels said.

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