The US, the New Switzerland

• After multiple whistleblowers blew apart the Swiss mystique of being an invulnerable vault of secrecy, several US states discreetly seized the opening.

This is the seventh in a series on tax evasion that begins here ­­.

Somebody asked New York House rep Carolyn Maloney (D), ‘How come there are no Americans in the Panama Papers?’ She replied, “Because we don’t have to go to Panama-we can hide it right here in the US. It’s outrageous.”

But that was only the beginning. Soon others pointed out the new hypocrisy in the US’s supposed fight against offshore tax evasion:

Could it be true? While the US was publicly leading the charge against Swiss banks driving away the Swiss lucrative customer base for tax relief, were some of its states quietly giving refuge to this new group of huddled masses yearning to breathe free of taxes?

In January, 2016, after the leaks by Bradley Birkenfeld, Bloomberg journalist Jesse Drucker saw that Rothschild Wealth Management & Trust was offering a talk on wealth management entitled: “ Using US Trusts in International Planning: 10 Amazing Feats to Impress Clients and Colleagues.”

Drucker got a look at a draft of presenter Andrew Penny’s pitch. Penny wrote,

“The US is effectively the biggest tax haven in the world”.

Drucker understood Penny’s message to mean: You can help your tax evading clients move their fortunes to the United States, free of taxes and hidden from their governments.

Drucker was enticed. He bought a ticket. At the seminar, Rothschild presenters said that the money had been flying from the Caymans, Bahamas and the British Virgin Islands and even venerable Switzerland to Nevada, Wyoming and South Dakota.

Emma Rees of Rothschild’s explained it’s all legal. We have lawyers review all files to ensure the schemes are in full compliance with tax laws.

With eerie foreshadowing of the Pandora Papers, a co-presenter was Alice Rokahr of Trident Trust’s South Dakota branch.

Trident’s Website promotes South Dakota as the place for impregnable secrecy:

“South Dakota is frequently ranked the number one trust jurisdiction in the United States. It is recognized for its modern trust laws, which include powerful privacy, asset protection provisions and the ability to establish dynastic trusts for multi-generational planning.”

Rokahr 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.

Lame reasoning. For kidnappers, there are enough wealthy people who like to flash their affluence: huge estate homes, chauffeur driven limousines, yachts, memberships at exclusive clubs. They don’t try to hide their wealth from the public; they flaunt it.

The Pandora Papers: How Offshore Became Onshore

● Nevada, Wyoming and Delaware as competitors for the wealth hiding industry

The Pandora Paper’s data reveals:

● Billionaires who come from 45 countries, with the largest number from Russia (52), Brazil (15), the U.K. (13) and Israel (10).

● Nearly 30 of those trusts — many of which were in South Dakota — were linked to entities and individuals accused of criminal activity and human rights abuses.

Why Trusts Are a Serious Problem

Trust companies like Trident that administer trusts are public entities. The trusts that they administer are not. A common example of a trust would be:

● a mother (the settlor) gives $1 million

● to a trustee who has control over the money

● for the benefit of her two children (the beneficiaries).

Trusts can be created in a lawyer’s office with only hardcopies given to the clients and digital copies kept in an encrypted file on a computer that is never connected to the Internet.

Trusts are used in a chain of ownership of shell corporations, each of which is incorporated in several diverse, secrecy jurisdictions. Only the trustee’s name will appear on any data related to the corporation such as director or shareholder. And there’s no way of discovering that the person named is a trustee. It brings the investigation to a full stop.

The law in most countries only permits a search warrant if the investigators have reasonable grounds, which means some evidence, not speculation, to believe there are documents related to the commission of a crime in the lawyer’s office. The secret trust creates the perfect Catch22 for the investigators. The investigators can’t get the slightest information that the named person is a trustee because it is never stored in a place where they can get it. Even a hacker cannot reach an air gapped computer. So, the only hope for disclosure is by a whistleblower.

More on how trusts are used in a chain of shell corporations to hide the true owner: Easy Tax Evasion.

The Era of the Perpetual Trust Fund Babies

You might ask: why the advantage of secret trusts in states recommended by the Rothschild Bank? Why not do any of this in, say, Michigan? Good questions.

There are a few reasons.

The common law puts restrictions on the lifecycle of a trust. As an early English judge said, “we should not let the dead rule us from their graves.” Therefore, the judges created a law to prevent trusts from lasting in perpetuity, to use the now outdated term that the judges of the time favored.

But these laws had the effect of letting the third generation have access to the entire family inheritance. A saying sprang up: The first generation makes it, the second generation spends it, and the third generation loses it.

● The recommended states changed that law to allow trust to exist in perpetuity thus more effective in creating dynastic wealth.

● The trust is not administered by a family friend, but professional management at a trust company.

Additionally, there is no tax on the trust income, so no filing by it with the IRS and thus no record of it with the US government. The IRS would not have information to share of the trust’s existence or taxable gains with a foreign government under any tax information exchange agreement.

While the trusts do not pay tax, the trust company does on its profits and provides local employment. Both wins for the state because it wouldn’t get the trust income anyway.

Originally published at https://jandweir.substack.com.