Earlier this year, a massive volume of data was leaked from the Panama-based law firm Mossack Fonseca. The data detailed the offshore accounts of numerous entities throughout the world, including political figures, business owners, and generally wealthy individuals.
While many of the records indicated perfectly legal activity, some showed some illicit actions designed to evade financial obligations such as taxes. The offshore banks set up by these entities were done so secretively, making the true owners of these companies impossible to track.
Given the uproar surrounding the Panama Papers and the illegal activity they disclosed to the public, many now wonder whether their offshore assets are safe or even completely legal.
Legal Ramifications of the Panama Papers
As of yet, the United States hasn’t seen anything major as a result of the Panama Papers aside from some possible legislation to be passed in Nevada and Wyoming. This legislation would rectify certain aspects of the law that otherwise make it easy to hide the true owner of a company operated in these areas.
Aside from that, the only thing that has changed when it comes to asset protection is that the jurisdiction you use to safeguard your assets is even more important than before. The world as a whole is taking a closer look at what people do with overseas banking and corporate entities, so it’s crucial to make sure these matters are handled transparently and legally.
Effect on Asset Protection
Good asset protection does not require secrecy. In fact, the IRS requires owners of offshore companies and banks to disclose offshore trusts, companies, and other accounts, so keeping them secret is, in fact, illegal. Secretive activities are unnecessary since these types of accounts can still help you minimize tax liability while also being completely transparent.
When setting up offshore accounts, it’s important to choose a jurisdiction where there are stable laws and political systems in place. If the laws can be relied upon and if the political structure is historically stable, it ensures your assets are kept secure.
Structuring these accounts properly is also important. You must make certain they are constructed in a way that ensures they are fully compliant with tax laws (both stateside and overseas) while also minimizing tax obligations and securing funds against creditors.
But Is It Ethical?
One of the questions brought up since the Panama Papers leak has been whether keeping offshore accounts is ethical. Some argue that these accounts are harmful for foreign economies and that they help the wealthy and powerful evade their “fair share” of tax payments.
When handled transparently and in full compliance with domestic and foreign tax laws, these accounts can be used for perfectly legitimate operations, including asset protection and diversifying investments. They can also be highly useful—perhaps even necessary—for conducting business with nations overseas.
Of course, the key is to handle them without relying on secrecy or illicit measures. This requires expertise with both foreign and domestic laws as well as familiarity with the nuances of different jurisdictions. A corporate law firm, such as Hart & David, can help you set up these accounts to be fully compliant and perfectly effective.