Schedule an Appointment


Make A Payment

On April 3, 2016, 11.5 million leaked files from Panamanian law firm Mossack Fonseca (known as the “Panama Papers”) hit news outlets around the world.  Mossack Fonseca specializes in offshore planning in countries regarded as “tax havens.”  This torrent of leaked documents appears to show how Mossack Fonseca helped celebrities, business executives, and high-ranking government officials use offshore entities and accounts for several improper and even illegal purposes.
Contrary to what may be implied from some of the media coverage of the situation, the Panama Papers do not mark the end of offshore planning.  Given the tone of the media reporting, you may be surprised to know that while it is a relatively small percentage of what we do, KKOS Lawyers has and will continue to help clients with offshore planning.  We only engage in this type of planning in limited circumstances, and we have and will continue to do so in an open and honest manner.
So, why are Mossack Fonseca and their clients in such hot water, while KKOS and other legitimate practitioners can and do continue to help clients protect their assets through establishing offshore trusts and business entities?  The answer boils down making sure the reasons for the offshore planning are legitimate.  The folks exposed in the Panama Papers were using offshore planning as a means to improper and often illegal ends.
This gives us an opportunity to explore what potential motivations for offshore planning may or may not be obtained by legitimate means.  Let’s start with what is NOT legitimate:

  • Tax avoidance. The perception is that this is the number one reason why people go offshore, and I have spoken with some clients who came into the office hopeful that I would be able to help them save taxes by establishing a foreign entity.  However, the truth is that U.S. citizens are subject to tax on their worldwide income, and must report all income earned by assets held in offshore entities.  While some offshore planning may provide very limited legitimate tax savings, going offshore is typically “tax-neutral” – it will neither improve nor harm the client from a tax perspective.  I always tell clients interested in offshore planning the same thing: “Do not use an offshore entity or trust to try to hide assets or income from the IRS!!!”  This is not a legitimate goal of offshore planning, and when (not if) the IRS finds out, you will be looking not only at fines and civil penalties, but possible jail time.  It is simply not worth it.
  • Hiding Assets from Current Creditors. If you have a judgment against you or are in the middle of a threatened or ongoing lawsuit, then unfortunately the time for offshore, or any other type of asset protection planning, has passed.  Moving assets offshore at that point would be considered a fraudulent transfer.  Defrauding creditors is never a legitimate purpose for offshore planning.
  • Money Laundering. This one sort of goes without saying.  Money laundering is not a legitimate purpose for any trust, bank account, or business entity – regardless of whether it is offshore or not.  So, if your car wash businesses just aren’t cutting it in terms of laundering the profits from your meth-dealing activities, and you want to take it to the next level by going offshore, then neither you nor Walter White should come to our office looking for help.

So, what ARE some legitimate reasons for offshore planning?

  • Protecting Assets from Potential Future Creditors. For most people, setting up domestic business entities (corporations, LLC’s, limited partnerships, etc.) and possibly a Domestic Asset Protection Trust (“DAPT”), along with planning using homestead and retirement plan exemptions, can be effective and cost-efficient tools in the quest to protect assets from future creditors.  However, some clients feel more secure if some of their assets are held by offshore trusts or entities in jurisdictions that provide heightened protection from frivolous creditors (for example, Nevis).  The costs for this sort of planning are higher than those involved in more traditional asset protection planning, but some clients determine that the additional protection is worth the higher costs.  We can and do help those clients.
  • Estate Planning. Some clients hold life insurance as part of their investment portfolio, and may desire the added flexibility and options that offshore private placement life insurance policies can offer.

At the end of the day, I think there are two main takeaways from the Panama Papers saga:

  • You can’t hide forever. This is true even if you happen to be incredibly rich or powerful.  If you are thinking about going offshore, but your motivation is to hide (from the IRS, from current creditors, or from the authorities), then you are simply deceiving yourself about what offshore planning is and what it can do for you.
  • Offshore planning is not dead. The Panama Papers did not kill offshore planning.  However, they offer an important cautionary tale about what can happen when offshore structures and accounts are used improperly.