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Need to hide some income? You don't have to go to Panama

For wealthy Americans looking to veil their assets and shield some of their income from taxation, there is no need to go to Panama or any other offshore tax haven. It's easy to establish a shell corporation right here at home.

"In Wyoming, Nevada and Delaware, it's possible to create these shell corporations with virtually no questions asked," said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a nonprofit research organization in Washington.

In some places, it can be more difficult to get a fishing license than to register a shell company. And it doesn't cost much more.

The Panama Papers — the cache of leaked documents from a Panama law firm, Mossack Fonseca — have revealed how thousands of the firm's clients, including an array of powerful figures around the world, stashed billions of dollars in tax havens. So far, only a tiny number of U.S. names have surfaced — although that could change as more of the documents are reviewed.

That in no way means that U.S. citizens are refraining from such practices, experts emphasized.

"This is just one firm in one place," said Gabriel Zucman, an economist and the author of The Hidden Wealth of Nations: The Scourge of Tax Havens. "So it cannot be representative of what's happening as a whole in the world."

But Zucman, who estimates that about 8 percent of the world's financial wealth — more than $7.6 trillion — is hidden in offshore accounts, said another reason was that it is so simple to create anonymous shell companies within the United States.

Wealthy individuals and businesses that want to mask their ownership can conveniently do so in the United States, and then stash those assets abroad.

Double standard

While the United States demands that financial institutions in other countries share information about Americans with accounts abroad, it has refused to reciprocate.

"You see a ton of wealth in tax havens in Switzerland and the Cayman Islands that is owned by shell companies that are incorporated in Panama or in Delaware," Zucman said. "The bulk of this wealth does not seem to be duly declared on tax returns."

A recent report by the Institute on Taxation and Economic Policy called "Delaware: An Onshore Tax Haven" noted that the state's lack of transparency combined with an enticing loophole in its tax code "makes it a magnet for people looking to create anonymous shell companies, which individuals and corporations can use to evade an inestimable amount in federal and foreign taxes."

Aside from avoiding taxes, shell companies are routinely used by terrorist organizations to hide assets, by political donors to sidestep campaign finance laws and by criminals to launder money, Gardner said.

The Treasury Department indicated this week that it planned to require financial institutions to verify the identities of customers who set up accounts in the names of shell companies, thus closing a loophole in the U.S. banking system that thwarts transparency efforts.

The Treasury also recently began a program that tracks people who use shell companies to purchase expensive real estate in New York and Miami.

But the new rules would not affect state law.

John A. Cassara, a former special agent for the Treasury Department, said that U.S. and foreign law enforcement officials conducting investigations were regularly stymied by state secrecy laws surrounding shell corporations.

"If somebody is conducting an investigation and it comes back to a Delaware company and you want to find who or what is behind that company, you basically strike out," he said. "It doesn't matter if it's the FBI, at the federal level, state or local. Even the Department of Justice can't get the information. There is nothing you can do."

He also recalled a case in which investigators ended up abandoning their inquiry of a Nevada corporation that had received more than 3,700 suspicious wire transfers totaling $81 million over two years.

After revelations came to light about Americans using Swiss bank accounts to evade taxes, the United States in 2010 passed the Foreign Account Tax Compliance Act, which requires financial firms in other countries to disclose details about U.S. clients with offshore accounts.

Yet the United States is one of the few countries that has refused to sign new international standards for exchanging similar financial information with other countries.

Another country that has failed to sign the standards? Panama.

Need to hide some income? You don't have to go to Panama 04/08/16 [Last modified: Friday, April 8, 2016 7:20pm]
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