Pandora Papers Be Damned: Why You Should Bank Offshore

October 25, 2021

Most are familiar with the 10 Commandments…

You know, don’t kill… chill on the Sabbath… honor your folks… don’t covet others’ stuff…

And if you’ve been reading the news lately, you may think there’s an 11th Commandment: Thou shalt not hold assets offshore.

(The reality is just the opposite, as I’ll explain below. I’d tattoo it on my forehead if it would help convince you that you should definitely hold assets offshore. Really.)

But no, offshore banking wasn’t part of Moses and his tablets… Foreign investment companies, tax evasion, and money laundering – and tut-tutting journalists talking about them – weren’t a thing in Biblical times.

But they are now… In early October, a data dump of around 12 million files swiped from 14 financial institutions – dubbed the Pandora Papers – shined a bright light on some of the darker corners of finance.

Everyone (Who’s Anyone) Is Doing It

It turns out – who knew – that everyone from Spanish crooner Julio Iglesias to the finance minister of the Netherlands, to Russian President Vladimir Putin’s (not-so) secret squeeze, to German supermodel Claudia Schiffer has an offshore entity. They’re the BMW X5 of the suburban mom set, the Beanie Babies of the 1993 Christmas season, the New Balance sneakers of the urban crowd… only for rich people.

Strictly speaking, an offshore entity is a shell company, trust, account, or other structure that’s held in a country other than where the owner lives. They’re often in the likes of Panama, Cyprus, Hong Kong, the Cayman Islands, or other countries – or U.S. states like South Dakota, Delaware, or Florida – where disclosure rules are as skimpy as the bikinis in the Seychelles (another popular venue).

The Pandora Papers were released by media group International Consortium of Investigative Journalists (“ICIJ”). They followed the organization’s Panama Papers (2016), the Paradise Papers (2017), the FinCEN Files (last year), and other big-data leaks. And all of these have likely been the source of untold numbers of “oh sh*t” moments amongst the world’s rich and well-connected, as their financial affairs were suddenly broadcast on the Internet for all to see – local tax authorities included.

These papers show how these types of people use their tax-shelter playthings to hide cash, real estate, shareholdings in companies, trusts, and lots of other assets that are worth something.

And often, they’re worth quite a lot… For example, $550 million in property in the United Kingdom (Azerbaijan President Ilham Aliyev), $9 million in office real estate (former U.K. Prime Minister Tony Blair), three properties next to each other in Malibu worth around $70 million (King Abdullah II of Jordan), and a $22 million villa on the French Rivera (Czech Republic Prime Minister Andrej Babis) were all part of the offshore entities revealed by the Pandora Papers.

Cue the Indignation

According to the (hyper-capitalist, greed-is-good) Financial Times, the Pandora Papers show – simply put – “how the wealthy use tax havens to move and store money.”

But the Washington Post reflects the “how could they!” nature of most coverage of the leaked financial data. It reported that the Pandora Papers “[expose] vast reaches of the secretive offshore system used to hide billions of dollars from tax authorities, creditors, criminal investigators and… citizens around the world.”

And there’s no mistaking which side the ICIJ falls on. Pandora’s box, of course, is the container that the ever-curious Pandora (the first human woman in Greek mythology) couldn’t resist opening, and then when of course she did open it, untold troubles and curses were unleashed on humankind.

And why would the rich and powerful use offshore entities? Any reason is bad, at least as explained in a National Public Radio conversation with a Washington Post journalist who sifted through the trove of Pandora documents with the ICIJ:

[The benefits of offshore entities] include hiding wealth or income and moving it to jurisdictions where there is a much lower tax rate… there are many other reasons… escaping accountability, escaping notice, hiding money from creditors, hiding money from a spouse or family members you don’t want to get their hands on it. There are criminal enterprises that take advantage of offshore laws and hide money so that their ill-gotten gains are not discovered. Politicians can use offshore accounts if they’re engaged in corruption…

Indeed, offshore entities can do harm if used to excess, or in the wrong way – like chainsaws and Advil and roller coaster rides and pretty much anything else in life. When rich people don’t pay as much in taxes as they’re supposed to, us poor law-abiding schlubs suffer. The political system is undercut when politicians hide cash. In a world of enormous wealth inequality, rich people cheating the system makes these disparities even greater… and the restless masses even more angry. The day the revolution happens, billionaires hiding cash abroad will be a reason.

(But the most important reason for using offshore entities – completely ignored in the tut-tutting – is this: It’s smart to diversify your assets… more on that below.)

But there’s just one problem with this “everything offshore is evil” narrative…

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Newsflash: Offshore – Done Right – Is Perfectly Legal!

You see… it’s not illegal to hold assets offshore – whether it’s in Canada or Lichtenstein or Singapore. In fact, as I’ll explain in a moment, you’d be foolish not to keep some of your assets somewhere else.

This little detail – that there’s nothing inherently wrong, illegal, or bad about keeping your money somewhere other than your home country – is lost in the bluster and harumphing.

A sidenote in a voluminous Washington Post article on the Pandora Papers acknowledges (a few thousand or so words deep) that “Offshore providers are typically established according to the laws of the country where they are located. But some clients have used offshore services in ways that are not legal.”

The New York Times admits that “Many wealthy individuals may have valid reasons to legally protect disclosures about their assets — to shield them from unscrupulous associates or extortion attempts, for example, or to ensure inheritance for their descendants.”

But the problem is that, well, they don’t follow the spirit of the law: “Advocates of greater financial transparency say the system is abused, vulnerable to corruption and built for greed.”

The Guardian concedes that “Not everyone named in the Pandora papers is accused of wrongdoing.”

That ownership of an asset outside the borders of your home country is not against the law derails the narrative, though.

Yes, of course, owning assets offshore can be criminal – in the same way that if you go 65 in a 35-mph zone, you’re breaking the law. That doesn’t mean that owning a car is illegal. It only means that you’re using your car in the wrong way.

And offshore banking can be illegal in the same way that bad guys might demand ransomware payments in bitcoin… which is also a way to pay for bricks of cocaine or hot TVs. A medium of exchange like bitcoin isn’t good or bad – and doesn’t imply guilt about anything.

Click here to read Part 2 of Kim’s Story.