The vast majority of Americans don’t even know they hold foreign bank accounts. The big handful who do know, don’t want anyone else to know.
About a quarter of American households have overseas financial assets that were unreported to the Internal Revenue Service in 2014, according to a study released Wednesday by the Brookings Institution. Those numbers are up 3.4% from a year earlier.
But hiding your income from the government is only one of the advantages of an offshore account, according to the Brookings report. Another is that you can set up several secretive trusts offshore to hide the extent of your assets from the IRS.
If the report is accurate, only 18% of Americans actually opened a foreign bank account in 2014. That’s almost double the share who opened an account in 2011, but still far lower than the rate that Americans report owning shares outside the United States.
It’s possible that these numbers could change. In recent years, offshore investors have shifted some of their funds out of the name-brand banks because of soaring fees, said Jeremy Koning, a principal at tax and advisory firm Koning & Associates.
Some anonymous investors have also created their own firms to manage their assets. The first of these companies went public in 2014, according to Steven Appleton, founder of Professor Analytics.
Other hidden offshore companies appear to be linked to research banks. They might collect money for future research, or help manage and publish work to investors on the financial health of companies operating in targeted industries, such as energy, technology or healthcare.
One of those companies, Forester Asset Management, could lose its investment-banking and research charter after learning that the company, founded by Murray Forester, a Canadian-born Canadian businessman, has gone to court to prevent the New York attorney general from finding out who had invested in the offshore shell company.
In July 2014, the New York attorney general ordered Forester to submit its owners list, along with a list of its auditors, accountants and investment advisers, to the state.
Forester is contesting the order. If the company loses, it could have to turn over that information to the New York attorney general and its clients, Reuters reported.
The key to making money abroad is finding someone to open a foreign bank account. But that information can be difficult to come by because banks, often aided by their lawyers, don’t want to share data with American authorities.
Failing to open a foreign bank account can lead to paying a hefty fine or being banned from transferring money into the United States.
A Canadian man arrested in New York in 2015 on tax evasion charges described the experience in court documents.
The man, identified only as “John Doe #1,” said that he learned the hard way how even the seemingly remote nations of Canada and Panama had people that would submit foreign accounts without suspicion.
“I thought I had found the secret to anonymity. I meant to go to Panama, Panama where laws are restrictive on foreign account holders to avoid detection. Unfortunately that did not make sense to Panama where anything goes,” said the man, according to a transcript.
“I would wake up in the morning, call (foreign bank) and the phone would ring unanswered. I would call and call for almost a week,” he said.
So John Doe #1 decided to do something drastic. He arranged to deposit US$14.5 million into a Canadian trust that was opened in a Panama bank, according to a later account in which he pleaded guilty.