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The “Panama Papers” Are Just the Tip of a Giant – and Possibly Very Lucrative – Iceberg

4 | By Shah Gilani

On April 3, the first news reports surfaced detailing leaked information in what’s known as the “Panama Papers” hacked email documents exposing more than 214,000 shell corporations created by Panamanian law firm Mossack Fonseca.

The Papers identified heads of state and government leaders from over forty countries as beneficiaries and investors in secretive off-shore shell companies.

The short list of who’s been “outed” is already having profound effects across the globe.

But the leaked Panama Papers are the tip of a giant iceberg that’s going to melt and drown more world leaders, powerful politicos, entire governments, moguls, bankers, and banks.

As more facts and figures come out of the 2.6 terabytes of data contained in 11.6 million hacked Mossack Fonseca emails, it’s going to be impossible for shell company beneficial owners and tax haven purveyors to escape regulatory and tax authority investigations.

Today, I’m going to tell you everything you need to know about how the shell game is really played – and how ordinary investors can use legal shell companies to protect their assets.

Then, on Friday, I’ll explain whose been caught swimming naked and what pending investigations will do to shell company beneficiaries and the law firms and banks that aid and abet what amounts to a giant international asset juggling act… and I’ll let you in on secret of your own – how you can profit from the outcome of these investigations.

The Truth About Shell Companies

First of all, most shell companies are set-up for perfectly legitimate purposes.

Shell companies are created using different entity structures. They’re mostly set up as corporations and limited liability companies, but other structures designed to limit liability and provide anonymity for their beneficial owners can be used.

There are millions of legitimate “shell” companies just in the U.S., set up for different reasons.

The buyer of a sought after piece of real estate, for example, might want to create a shell company to bid anonymously for the property, not wanting the seller to know who they are and that they’re capable of paying a lot more money.

That same buyer might keep the property in a shell company to protect it as an asset.

While the beneficial owner of the shell company and the property is a person, the law recognizes the shell company as a separate entity, distinct from its beneficial owner.

If something happens to the beneficial owner of the shell and property, such that he is at risk of losing what he owns, since he doesn’t technically own the house, the shell owns it, the property may be safe from creditors.

An automobile can be put into a shell company. That way, if the beneficial owner of the car, who is authorized to use it by the company they set-up to own it, gets into an accident in the car, injured parties who want to sue the owner of the car for more than their insurance covers won’t get far. That’s because the actual owner of the car is a company whose only asset is that car. There would be nothing to sue for, since the company housing the car has no other assets.

Still, that wouldn’t stop injured parties from suing the driver of the car. However, the driver may have put all their other assets into shell companies and not directly own any assets themselves, and thus not be worth pursuing.

It’s called asset protection, it’s totally legal, and the richest families in the U.S., from the Fords and the Rockefellers to a lot of smart people you probably know have shells.

University of California Berkeley economist Gabriel Zucman estimates $7.6 trillion or 8% of global financial assets of households (not businesses) are held in shell companies, mostly in tax havens, which includes the U.S.

A Few Bad Apples…

Of course, shell company structures can be used for lots of other purposes, including legitimate tax minimization and tax avoidance purposes, as well as tax evasion schemes, which are illegal.

Ill-begotten money, from activities like bribery payments and drug smuggling, to dealing in conflict diamonds, can be hidden and “cleaned” through a process of moving money through different shell companies.

The Panama Papers give the world an insider’s view into the tax haven shell game.

Panamanian law firm Mossack Fonseca, which has offices around the world, sets up and helps manage shell companies in Panama and across the globe.

One reason shell companies are set up in Panama is that the cost to create them is cheap. Depending on the purpose of the shell, what it will be used for, how it will be used, if there will be other shell companies that have to be set up in other jurisdictions and what “assets” might move through the shell companies, the cost of a “structure” can run from less than a $1000, to millions of dollars.

Another reason Panama is popular is foreign sourced money coming into Panama usually isn’t subject to tax. And there is no capital gains tax (except on real estate) on interest income in Panama.

Interestingly, most of the asset protection vehicles and shell company structures used by Mossack Fonseca, other Panamanian companies, and tax haven jurisdictions around the world, are modeled on corporate laws established in the state of Delaware in 1927.

Most Mossack-created shell companies, as is the norm, are established by other shell companies to hide their true beneficial owners. In other words, a company sets up another company, so there are no persons named.

The shell company uses “nominee” directors, who are paid directors willing to act on behalf of the shell’s real beneficiaries.

The secrecy is all well and good until the “corporate veil is pierced,” usually through legal proceedings against a shell company that isn’t set up properly or doesn’t file proper paperwork when and where it has to.

That’s why law firms are used. They keep clients on the proper paths as best they can.

That’s all for today… on Friday, I’ll go over who has resigned, who’s going to have to resign, which governments are in serious jeopardy, and who the biggest losers will be.

And that’s not all…

I’ll tell you how law firms are going to be impacted, and more importantly, how bankers and banks are going to get hit by the fallout… and how you can make money when they get taken to the woodshed.

4 Responses to The “Panama Papers” Are Just the Tip of a Giant – and Possibly Very Lucrative – Iceberg

  1. Fabian says:

    It’s going to be difficult to shelter assets with a shell company, particularly if they are declared as they must. The judge will simply ask you to take the assets out of the company. The only possible way is if you totally surrender your ownership to a a trustee but that creates another set of problems.

  2. Bernie B says:

    Can’t wait for the rest of Mr. Gilanis piece on this.
    Now who still thinks Snowden was a traitor? Not me.
    Good hackers and bad hackers.
    A little sunshine never hurt anyone, but apparently hurts governments.

  3. Richard says:

    Fabian – You are quite right, if the laws of your country allow you to do that. But for those who want real protection, you open an irrevocable family trust and put all assets into it. It’s a great idea to have the trust own a corporation where all the capital is kept and you are the CEO of that corporation. Since you do not own the corporation no court can order you to ‘steal’ money from it. You also no longer own the assets of the trust. Putting your money into it ‘irrevocably’ means that you CAN’T get it back. The court can order you to do that, you can do exactly what the court orders you to do but the trust will automatically refuse you that demand. You cannot get the money out and the court cannot punish you for not being able to legally do something. The money and assets are SAFE. Now, the trust can give you any amount of money that it wants to, and you can direct the trustee to do that, until you become under duress and then the control automatically passes to the trustee until you are no longer under duress. This also prevents any court from ever getting your assets. This is not complete advice, it simply give you an option to pursue if you want to truly protect your assets. Join internationalman.com and you’ll get tons of great advice on how to do these things. Good luck to you.

  4. Kevin Beck says:

    The issue that I thought was most interesting to the American network news reports on this issue is that they were bringing up the “supposed” tax-evasion issue as their main point. This was presented as more important than whether there were any other illegalities involved, like poor planning and faulty record-keeping. And there was the potential exposure of several foreign heads of state and their relatives.

    Personally, none of those issues offend me at all. Once a person establishes wealth, then whatever they do with their assets is their business, not mine or anyone else’s. Which is way the details of the involved parties doesn’t interest me in the least. I would prefer that the United States would move toward the system established in Panama in the near future, instead of trying to close these opportunities from their own citizens. It is now more difficult for an American citizen to open a bank account anywhere outside the United States than it is for a foreigner to open one here.

    But if America were to move toward this ideal, then it would be more difficult to sue people and businesses here, since privacy in general would be more difficult to breach. And the privacy of the parties involved is more important than whether they may have not paid taxes to some foreign government.

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