Offshore Tax Havens: Where Fraudsters Hide Their Money

It’s not just about tax evasion

Posted by Dawn Lomer in Government Program Fraud, SIU & OIG on April 18th, 2013

An examination of offshore tax havens conducted by The Washington Post and the International Consortium of Investigative Journalists (ICIJ), a Washington DC-based nonprofit news organization, has stirred up all sorts of discussion and could eventually spell trouble for some of the account holders identified in the records if they are ever revealed.

The ICIJ got hold of 2.5 million records of more than 120,000 companies and trusts created by two offshore companies, one in the British Virgein Islands and one that operates in Asia and the Cook Islands. The list contained the names of 450 Canadians, and Revenue Canada is planning to pursue the CBC, the only Canadian member of the ICIJ, which has refused to give Ottawa the list. So that’s causing a stir north of the border.

Illegal Uses of Tax Havens

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While many people use offshore financial centers for legitimate reasons, as legal tax shelters or to smooth the way for international trade, some use them for more nefarious reasons. Of the 4,000 US citizens listed in the records, at least 30 are involved in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.

There’s no US law prohibiting citizens from moving funds offshore as long as they report it to the Internal Revenue Service. Naturally, the concern is that much of the money goes unreported and it’s difficult to get information from jurisdictions where secrecy is one of their mandates.

Offshore jurisdictions gained attention last year when it was revealed that Republican presidential nominee Mitt Romney had accounts in the Cayman Islands. But more compelling is the fact that convicted fraudsters, such as Raj Rajaratnam, Bernie Madoff and Paul Bilzerian all used offshore havens to hide their money.

Roadblocks to Discovery

The Wall Street Journal reported that: “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.”

“The offshore world makes it hard for prosecutors pursuing complex financial crimes to follow the money, because many offshore jurisdictions refuse to recognize U.S. subpoenas and account information is hidden under layers of corporate shells,” reported the WSJ.

This great little video by the ICIJ provides a simple explanation of how offshore accounts work and how easy it is for fraudsters to hide money.

Dawn Lomer
Dawn Lomer

Managing Editor

Dawn Lomer is the managing editor at i-Sight Software and a Certified Fraud Examiner (CFE). She writes about topics related to workplace investigations, ethics and compliance, data security and e-discovery, and hosts i-Sight webinars.