Treasure Islands

As you probably know, tax havens have low tax rates – for some. You might’ve heard stories of corrupt dictators or mafia bosses keeping money in Switzerland or the Cayman Islands. What’s the purpose of this?

It’s quite simple: secrecy. A secrecy jurisdiction enables people or entities to escape certain laws and regulations by relocating their funds to hidden places.

Tax havens don’t cooperate with authorities from other countries. You can’t tax someone without knowing how much money they have. This is why your bank notifies the authorities when money is put into your account.

Tax havens don’t provide this information to authorities, however. They only provide information if the authorities already know the specifics of your offshore banking, and even then there’s a process to go through.

Even if a tax haven does share information with law enforcement authorities, they still provide services to protect their clients.

Many tax havens have flee causes, for example. That means that if Interpol comes looking for your money, your assets will automatically be moved to another place, like an account in a different tax haven.

Ultimately, tax havens are able to provide almost perfect secrecy. Another way they do this is through the use of trusts.

In a trust, the person who pays the money is the owner, and they have to designate a certain goal for their fund. There’s also a professional manager called the trustee.

The goal of a trust is that the money should be paid back to the owner or their relatives after some amount of time. The trustee is often a professional lawyer who manages hundreds of trusts at once.

Tax authorities can’t know who the owner is – they only know the registered trustee. Lawyers can’t tell anyone who their beneficiaries are because that would be a breach of confidentiality. The real information stays hidden.