Non-disclosure or secrecy is fast becoming the new competitive advantage for US-based International Financial Centres. Early indicators show that money exiting reformed secrecy jurisdictions, like Switzerland and the Cayman Islands, is heading to US tax haven-states, like Nevada and South Dakota. The attraction lies in the several public assurances made by US officials that the IRS is not about to comply with international disclosure rules if they do not want to.
Of course, the the US has a legitimate concern, and it is one shared by other countries. However, only the US may be given licence to act on its fears. The concern is for the welfare of tax-payers whose information is exchanged with countries whose confidentially record fall short of US standards. As a result such exchanges may expose these taxpayers (and their families) to extortion, kidnapping death and other unintended consequences of the exchanges.
In some cases these concerns are not without merit. Indeed, US concerns are shared by other countries, including former secrecy jurisdictions, who have themselves signed onto the OECD Multilateral Convention to provide the legal basis for such automatic exchanges.
Whether a deliberate, or unintended consequence of the public position of the IRS articulated two years ago which makes it clear that the US will not share information it has with any country which falls short of US confidentiality standards, this assurance has ledmto a mass exodus of wealth from Europe and the Caribbean into the United States.
According to BloomburgBusiness,” After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners.”
By resisting new global disclosure standards, the US is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.
Its not just Rothschild, the centuries-old, European financial institution that is branching out to the USA with its new office in Reno, Nevada, others are also making the move: Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.
Trident Trust Co., one of the world’s biggest providers of offshore trusts, has reportedly moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline.
The pull factor being touted by the US-based operators is based on a argument that secrecy is justified in cases where non-disclosure is to protect the wealthy from kidnappings or extortion in their owners’ home countries.
While other countries have made the same point, it seems that, as is the case in other areas of international cooperation, the US may well be the only country who can make money by its unilateral enforcement of an exception to a global standard.
The U.S. failure to sign onto the OECD information-sharing standard is “proving to be a strong driver of growth for our business,” wrote Bolton’s chief executive officer, Ray Grenier, in a marketing e-mail to bankers. His firm is seeing a spike in accounts moved out of European banks—“Switzerland in particular”—and into the U.S. The new OECD standard “was the beginning of the exodus,” he said in an interview.
The more things change the more things remain the same.