When the Wall of Secrecy Collapses

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Foreign Accounts, Shell Companies, Blind Trusts, Asset Protection Trusts, Offshore Trusts, Global Citizenship and US Residency are just a few of the Terms highlighted in the mega divorce proceedings of a Palm Beach County couple -Sarah Pursglove versus Robert Oesterlund – and their $400MM fortune.   After the divorce caught the attention of the New York Times (NYT) it released its “Offshoring” article on 11/30/16: (https://www.nytimes.com/2016/11/30/magazine/how-to-hide-400-million.html).  According to Flipboard, it was one of the most read stories in 2016. 

The NYT Articles reads like a novel that is a real “page turner”.  It is mesmerizing to read how far the Ultra-Wealthy will go to protect their wealth.  Sometimes the purpose is legal tax avoidance.  Other times the purpose is tax evasion – which is illegal.  “Secrecy” is often tied to protection and preservation of Ultra-Wealthy Fortunes.  When the wall of secrecy is breached, a “Global” citizen may appear to be a criminal.

Lessons learned from the NYT article and the Sarah Pursglove versus Robert Oesterlund (SP/RO) divorce proceedings are: 

  • Shell companies are not necessarily illegal.
  • Offshore companies are often used to simply protect assets, run a foreign business or plan for the future. 
  • Uncovering the “Misuse” of shell companies is currently a high priority target for law enforcement and financial regulators. 

While Shell companies are currently viewed by law enforcement as a preferred tool for laundering illicit funds through real estate, in the SP/RO proceeding, apparently there was no indication of money laundering.  It appears as a case of sudden wealth, its preservation and greed.  The husband was not willing to share with his wife.   Minimizing taxes was his primary goal.  Hiding assets so they wouldn’t be shared was his secondary goal.  Take the title of the assets out of the country and hide them so that they cannot not be readily identified.

Some of the takeaways from this “Offshoring” story are:

  • Lawyers, Accountants, Bankers, Consultants and Tax Planners are masterminds of complexity; creating shell companies and trusts that may be used for the “wrong reasons”.
  • Corporate structures of companies outside the US and a personal asset protection strategy can be used to protect an Individual from possible litigation losses.
  • Moving asset titles outside of the US may shield assets from taxes and creditors.
  • Complex layers of ownership can be designed to “hide” assets held offshore.
  • Creditors and tax collectors may have difficulty getting to assets held offshore.
  • Asset protection trusts are estate planning tools. If organized in self-governing states like the Cook Islands, they can be very challenging and very expensive to investigate.
  • Multiple “residencies” for an Individual creates challenges.
  • Transfer pricing abuses can be used as a tool to make US tax liabilities decrease or disappear.
  • If complex corporate structures are brought down, the distance between an Individual owner of trusts and the trusts will diminish or disappear

Don’t be a victim of your own making.  Professional Service Providers like lawyers and accountants ought to exercise care when dealing with clients whose agenda is to “conceal” or “hide” assets.   Tax authorities and financial Institutions around the world have clamped down on offshore accounts and trusts. Tax transparency and compliance is here to stay as evidenced by FATCA and the Common Reporting Standard.

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