If you decide that you want to enter the illicit world of money laundering, consider the following three things that you will need:
- An unscrupulous lawyer/accountant/financial advisor,
- A lot of money,
- Amnesty from the tax authorities when you repatriate your money.
News stories abound about people who feel that they no longer have the obligation to their country and fellow citizens to pay tax, and they attempt to conceal their money. However, if the tax authorities discover them hiding money in an offshore jurisdiction, they may be subject to paying back taxes owed, interest, fines, legal fees, and receive criminal punishments (including jail time). Even though most people grumble about paying taxes, realize that your tax bill is a blessing of sorts – at least you have enough income to have to pay taxes.
From time to time I get calls from people who, without identifying themselves, ask if I can arrange investments that are not taxable. Normally, that question should lead to a discussion of pension plans, municipal bonds, IRAs (individual retirement accounts), and other saving programs that have tax benefits. “No, Mr. Goldstein,” they say, as if I am the most naïve investment advisor they have ever spoken to, “I want an offshore account.” Then I explain that we have no problem with opening accounts for offshore trusts and corporations, but we need to have the ID of the owners. The caller usually hangs up at this point, realizing that I am not about to become his partner in crime. I suspect that such callers may end up buying offshore mutual funds, thinking that, since there is no withholding tax at the security level, they have dodged the taxman. Ultimately, though, they will be required to report their earnings to some tax jurisdiction.
If you are considering establishing an offshore presence, investigate the legal status of the venture. There are certainly reasons for people to use offshore jurisdictions, and there are specialist advisers whom I have met that know all the ins and outs. Unfortunately, there are also questionable advisers who encourage people to open offshore accounts in order to hide money. Those advisers either don’t know the law well enough or they believe they have found some loophole in the law. When I have investigated their ideas with the aid of top-notch tax lawyers and accountants, they usually just roll their eyes. A good test of whether the strategy is legit is to ask, “If I showed this idea to the income tax authority’s auditor, would he approve? Would he say, ‘What a fascinating approach you have! It’s one we have never thought of. Enjoy your tax-free ride.’ Or would he say, ‘Please hold on while I call our legal department to press charges against you for tax evasion.’”?
Investing does not need to be complicated. Tax planning is a legitimate strategy when it comes to your money. However, you must be sure that you are not breaking any rules. Call your financial and tax advisers now to make sure that you won’t get an unfriendly knock on the door one day.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published May 20, 2012.