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The first Bank Secrecy Act in the
Caribbean was adopted in the Bahamas
in 1964. Until then, Switzerland had
always been the “renowned banking
haven” – known throughout the world
for its “private banking”. The
Cayman Islands government soon
followed the Bahamas Bank Secrecy
Act, with almost identical
legislation a year later. The growth
of the Cayman Islands into the top
offshore banking center was spurred
on originally by their Secrecy Act.
Today, all the tax havens have
Secrecy or Confidentiality
Ordinances. One exception is
Bermuda, which never officially
adopted a secrecy act – as Bermuda’s
“common law” and isolated
“jurisdiction” had always served it
well. As it turned out, the
Secrecy/Confidentiality Acts and
Ordinances were a boost to offshore
businesses for the Caribbean and
Pacific tax havens, and for the most
part, they still are. While the
original idea of Banking Secrecy was
a good one for the offshore havens,
it was not (and never will) well
received by the US Treasury
Department and their enforcement
agency – the IRS. While no one would
argue that these countries have
every right to adopt and promote
their bank secrecy, it has caused
problems, including attracting a
criminal element; drug money
laundering issues, and tax evasion
issues for citizens from Industrial
nations like the US, UK, Canada and
Australia. Bank Secrecy alone has
worked well for the end users for
over forty years, but under US law
(and the laws of other
industrialized nations – Japan, UK,
Canada, Australia) it is income tax
evasion (a felony) just having an
offshore bank account and not
reporting the income on one’s tax
return. In the U.S., the mere
existence of the bank and security
accounts are reportable on a Form TD
90-22.1.
But Secrecy and Confidentiality
Ordinances offer protection against
creditors and “others”; and where
taxes alone are not the issue, bank
secrecy along with “jurisdiction”
add up to “asset protection’,
privacy and more. privacy: One
author writes: “People can't find
your offshore assets.” The Bank
Secrecy Acts in the Bahamas (Cayman,
Anguilla and the BVI) are said to
impenetrable. Exception: All these
countries have Mutual Legal
Assistance Treaties with the United
States and other nations which allow
for cooperation in criminal matters
(i.e., other than tax issues). A
crime such as embezzlement of assets
from the coffers of a US company to
“hidden bank accounts” offshore is
going to end up in conviction and
sentencing – most of the time. The
MLATs are applicable on the “Federal
level” through the US Attorney’s
office (i.e., located in Miami,
Atlanta, New York, and L.A.).
However, there is no “cooperation”
available to private investigations
under the MLAT –except through the
use of local (Bahamian, Anguillian,
Cayman) attorneys and the local
courts of those countries. When such
“investigations are pursued, they
are often expensive and futile – as
the tax havens have a reputation to
protect, and here again – bank
secrecy becomes an issue even in the
courts. U.S. Judgments are not
recognized offshore: “The Supreme
Court of the Bahamas does not
recognize U.S. court judgments
against a company incorporated in
their jurisdiction.” The same can be
said for the other Caribbean havens
– including Cayman, the British
Virgin Islands, Anguilla, Nevis and
St. Kitts. Federal Courts have no
jurisdiction: “U.S. Federal Court
judges have no power or authority
outside the U.S. borders. IRS liens
are not recognized offshore. Seizure
Warrants from the U.S. Customs
service are not recognized
offshore.” – basically, the author
of this statement is correct.
Another interesting protection
you’ll find offshore is American and
foreign lawyers cannot practice law
in these places. For example, here
in the Bahamas you have to be a
citizen of the Bahamas to become an
attorney and practice in the
Bahamian courts. Even the largest
American law firm would need to hire
a Bahamian law firm to pursue its
litigation or claims Notwithstanding
all of the above; there is no
“integration” between US tax law and
the law of any foreign nation –
excepting where there is an “income
tax treaty”. Yet, the US Treasury
Department has had a sympathetic
“ear’ and attitude to the offshore
financial community’s well being;
but this too, has varied from
“threats” to “bullying”, to
acceptance of their rights to exist
and impose no taxes. Use of tax
havens by citizens from any
industrial nation will always have
its risks and rewards. Knowing your
home country’s tax laws is
fundamental. An offshore firm or
bank – no matter how large and
reputable – simply isn’t interested
in your tax liability or problem.
The irony in all this is that the US
Tax Code and the Canadian tax code
and the UK tax code have tax
provisions that are favorable to
business. Not all outgoing or
incoming transactions are “outlawed”
or illegal. With a tax code that is
55,000 pages long, the US law
regarding the use of tax havens and
offshore bank accounts is certainly
discouraged.
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