On Board the Offshore Account Ship

The recent political furore surrounding Ireland's offshore accounts is disingenuous, to say the least, according to Elaine Lafferty
Newspaper headlines were screaming back in February. “Investors Use Irish Firms to Hide Money” proclaimed the Irish Times on February 6. “Financial Sector Profits from Offshore Companies” declared the Sunday Business Post in the same week. The television public-affairs shows were rife with politicians expressing shock that Ireland was considered an offshore money haven. Many indicated that the aggressive marketing of Ireland as such a financial hideaway was being done primarily in Eastern Europe and Russia. Much outcry seemed to centre on the International Financial Services Centre in Dublin, and the government said the centre's reputation was being hurt by the fact that up to 40,000 non-resident firms are registered here, enabling them to avoid taxes in their home jurisdictions. On one show, Mary Harney solemnly promised to get to the bottom of it, once and for all.

All of this can seem a bit baffling. Because in the United States—not Russia or Romania—Ireland has for years been touted as an offshore tax haven. It is no secret. Moreover, the audience for this scheme is not an obscure segment of the financial-services industry. Advertisements by companies who for a small fee will either incorporate or set up a trust in Ireland have been seen for years in such newspapers as the Wall Street Journal or the International Herald Tribune. Or how about this advertisement from American Way, the onboard magazine available to all passengers flying American Airlines:

“OFFSHORE COMPANIES AND TRUSTS
FROM ONLY $350.
MORE AND MORE OFFSHORE COMPANIES AND
TRUSTS ARE USED BY BUSINESSMEN AND HIGH NET-WORTH
INDIVIDUALS FOR THE PROTECTION OF INCOME
 AND ASSETS AND FOR PRIVACY.
WE INCORPORATE IN BAHAMAS, BELIZE, BERMUDA, CAYMAN, GIBRLATAR, HONG KONG, IRELAND, ISLE OF MAN, LIBERIA….”

The ad goes on to list seven other jurisdictions. The company doing all this is called International Company Services, operating from offices in Pompano Beach, Florida.
Matters get even more explicit on the Internet. A company called Irish Incorporations Limited of 4 William Street, Waterford, pulls no punches with its pitch. Under the heading of International Tax Planning, it says:

“The Irish Non-Resident Company has become a popular tax-planning instrument for many individuals and corporations looking to structure their tax affairs in an efficient and cost-effective jurisdiction. As a full member of the European Union, and a common-law jurisdiction, Ireland confers a respectable corporate image.”

In discussing the benefits of the INRC, they note that “Irish non-resident companies are ideal for asset protection, international trading purposes or for holding real estate.” The organisation goes on to note that Ireland allows nominee directors and shareholders; in other words, real names need not be disclosed. They then note that there will be no taxes on profits due to the Irish Inspector of Taxes. But why not go elsewhere in Europe? Simple.

“The Republic of Ireland is the only full member of the EU offering these facilities,” says the company. As for the impression that nobody in government really understood how these companies were being used, “We at Irish Incorporations Ltd are ideally situated to liaise and respond with the relevant authorities to ensure all our companies are fully compliant with prevailing corporate regulations. This ensures all our companies are maintained in good standing, thereby avoiding unnecessary attention.”

After promoting the fact that they can assist with the opening of bank accounts (with such banks as AIB plc or AIB in Vienna, Bank of Ireland, Credit Suisse in Guernsey or Zurich, Barclays in Dublin or Isle of Man), the company assures clients that all transactions and communications will be secret: “This information cannot be found on any files or records which are available for inspection by the general public.”

Why would Americans, especially those who are not criminals, be interested in offshore havens? While America's income-tax rates are lenient by many European standards—the highest income-tax rate is 36 per cent, lower than those in Germany or Britain, for example—it is still too high a rate for many wealthy people to accept sitting down. Until recently, the US capital-gains-tax rates were roughly 28 per cent (they have recently been lowered to 20 per cent for stocks held for longer than 18 months). There is an additional and perhaps more pressing incentive. America is an inordinately litigious society, a characteristic that (given Ireland's new fascination with the lawsuit) sadly seems to be becoming as popular an export as Hollywood entertainment. You slip on a wet floor in the supermarket—you sue. Your boss says something that offends you—you sue him. The plumber working in your home hurts himself—he sues you. The more assets a person has, the more attractive he becomes as the target of a lawsuit. An asset-protection newsletter published in Kansas, for instance, describes a family most at risk for lawsuits and thus most in need of asset protection: a married couple, both working as surgeons, who have assets that include rental properties and two teenagers learning to drive.

But it does not make sense to sue someone if you cannot get your hands on their assets. It is extremely difficult to find foreign bank accounts, as even the best private investigators, working on behalf of angry ex-spouses, will concede. And even if the accounts are located, it can be prohibitively expensive to seize them in a foreign jurisdiction. First you have to hire an Irish solicitor and then try to obtain a court judgement.

Both of these factors—tax avoidance and asset protection—make offshore accounts attractive for ordinary, albeit wealthy, foreigners. That was always the idea in setting up regulations, making confidentiality possible and tax avoidance realistic. It may be a bad idea, or it may be a legitimate one. The point is that for leading politicians anywhere to claim that they were completely in the dark seems a bit disingenuous.