Planet Money - We set up an offshore company in a tax haven (Classic)

Episode Date: October 6, 2021

The Pandora Papers released this week reveal how many world leaders allegedly hold wealth through the use of shell companies. We listen back to when we set up our very own Planet Money shell companies.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Quick announcement here. We're going to be at New York City Comic Con this Friday, October 8th, doing a panel about reviving an old superhero. So if you're going to be there, look us up. Come say hi. It'd be great to see you. This is Planet Money from NPR. This week, as you might have seen, the Pandora Papers dropped. This is a huge collection of nearly 12 million documents released by the International Consortium of Investigative Journalists. The papers reveal how many world leaders allegedly hold wealth outside of their countries. The president of Kenya, for instance, was reported to have $30 million hidden in shell companies formed in Panama. The Czech prime minister was tied to a $22 million house in Cannes, France. The King of Jordan was tied to more than $100 million in foreign property. All of these properties were hidden through shell companies, and those shell companies were often

created right here in the U.S. Since the leak, the politicians featured in the papers have defended their actions as legal, but many are facing strong criticism in their countries. In some cases, their holdings in other countries seem at odds with their anti-corruption pushes at home. This is, of course, the latest big leak of data revealing how the world's elite handle their money and often avoid paying taxes. And some of the details in the papers reminded us of our experience when we set up our very own Planet Money shell companies. We weren't trying to do anything illegal, but we wanted to get a sense of how easy it would be to get in on some of this offshore secrecy. So enjoy that episode, hosted by Chana Jaffe-Walt and Adam Davidson.

Then stick around to the end to hear what the Pandora Papers have revealed about the world of tax havens in 2021. to hear what the Pandora Papers have revealed about the world of tax havens in 2021. Hi, my name is Chana Jafi-Walt. I'm calling, hoping to set up a shell company somewhere offshore, Cayman Islands, Belize, Bahamas. I don't know. I would love your help trying to figure out how to do that. Thanks very much. Chana, you sound so nervous there. I did get a little nervous. It's kind of awkward to figure out how to ask somebody how to set up a shell company.

It's not something I knew how to do. And I didn't expect it to be so easy. I literally Googled offshore company registration and got 15 million results. And right there, there were lots and lots of websites with phone numbers listed for anyone to call. Thank you for calling Globes America. Press 4 to access our customer service department. Chana, it sounds like you're on hold.

Should we introduce the show? Let's do it. Hello and welcome to Planet Money. I'm Chana Jaffe-Walt. And I'm Adam Davidson. On today's show, we have been hearing all this stuff about these offshore tax havens. So we wanted to know, hey, can we get in on that? Can we get some of that action? So today on the show, we try to set up our own company in an offshore tax haven. Hello, good morning. This is Richard. How can I help you? Hi, Richard. My name is Hannah Jaffe-Waltz.

I'm calling, hoping to talk to somebody about setting up an offshore company. Okay. All right. Well, first of all, I'm Richard. I'm a senior administrative assistant at International Corporate Services. Our rates are the most competitive in the market right now. Richard Williams tells me from what is a terrible phone line in Belize that his company has the most competitive rates in the market right now, $650 to register a company in Belize, which does sound cheaper than I expected. But we didn't want to just take his word for it,

so we called around. Ana Vaivadeh with Fidelity Corporate Services told me she could register a company for me in Belize for $780. And she also offers other jurisdictions. She said it would be $800 for a company in the Seychelles and $1,000 for the British Virgin Islands. Well, in all of these jurisdictions, there are exempt of tax duties. We don't have to pay any taxes. Yeah, that's right. Now, are you in one of those places?

I'm from Latvia. So, Hanna, between you and me, we talked to or at least visited the websites of at least a dozen different companies. Those are the only two that let us record. We found prices that range from just over $500 to one guy, the minimum was over $3,000. And after you call a couple of these people, you sort of realize that there's a script that they followed. Sales pitch number one, which is basically what Ana told me, that there are no taxes in the jurisdiction where you register. And then they usually sort

of seamlessly move into sales pitch number two, which is no one will know your money is here. So just listen. Here's Richard and then Ana. Well, in Belize, we're exempt from all taxes. There's no business tax, no sales tax. And also, we can ensure full confidentiality of all your documents. What does that mean that you can ensure confidentiality? None of your information is leaked out or is disclosed to any other authority. No third parties, no creditors, no other companies have any access to this information. So if somebody comes to you and says, I want to know if Hannah Jaffe-Wald has money in this Belize company, what would you say?

It's a confidential information and we cannot provide this information. What if it's the U.S. government? To U.S. government, we don't give information. To U.S. government, we don't give information. However, U.S. government can turn to the government of Belize or government of Seychelles and request legal cooperation. But without court order, we don't give information to anybody. So if the U.S. government went to Belize and said, we want to know if Hannah Jaffe-Walt

has money in a registered company here, and then Belize issued a court order, then you would give up my information? Then yes. If Belize issues this court order, then yes. But if it comes from the United States straight to our office, we would say that, no, sorry, this is confidential information and we cannot give it. Ana told me to get started. I just need to send her three things, a notarized passport, proof of address like a recent utility bill, and the terms and conditions document that she would send to me. And when I asked about the passport ID, she kept apologizing that I had to send her an ID.

Like, Adam, did you get this when you talk to people? Like, I'm really sorry, but I just I do have to get these documents from you. I'm required by law. Yeah. One woman specifically said, oh, I really wish I didn't have to get any documents from you. But every offshore government requires it. And I did some digging into. So why is this? I thought these places were totally, you know, no rules. And not that long ago, they pretty much were. I mean, certainly 20 years ago, and probably most of the offshore jurisdictions 10 years ago, just about anyone could show up or make a phone call and register a company with no documentation at all. It could just be a completely anonymous shell company. But since the 1990s and really

heating up since 9-11, the U.S. and the EU have gotten together to clamp down on all this. They want to stop money laundering, they want to stop terrorist financing, and they want to capture taxes. So the U.S. and the EU have pressured all these offshore jurisdictions and said, US and the EU have pressured all these offshore jurisdictions and said, you need to pass laws requiring people to submit identifying information. We need to know there's a living, breathing human being behind each of these offshore companies. And this is sort of one of the tricky things about this world, because these offshore countries, you know, they might be small countries, but they are independent nations and they have every right to pass whatever laws they want. They're not colonies of the U.S. or Europe, at least not anymore. Right. Although sometimes they say it feels like they still are. And, you know, these offshore centers make a lot of money off of this kind of offshore activity. I talked to one guy in the tiny island of Jersey who said that something like 70,

80 percent of their GDP is either directly or indirectly based on these offshore centers. And so the last thing these offshore centers want is to completely scare away everyone. So what seems to have come about, at least for now, is sort of this uneasy piece where they pass these laws requiring really strict identifying information. And then they promise, look, we're not going to dig into this too much. And we're really, really sorry we have to do this at all. Right. Which is why Richard and Anna both apologized but said, we do need to have documents from you. It's the law. And then would repeat again and again, don't worry, we do not share that information with anyone.

No one will be able to find your money. At which point I asked, well, what about the money? Like a corporation is just a legal entity. How do I get money into the company? Because, you know, the whole idea here is supposed to be about money. And they both were really quick on this. They said, oh, yeah, yeah, that's a service we provide. Your company in Belize or in the British Virgin Islands can have its own bank account. And this will not be you setting up the bank account. Your company can get a bank account and we will set it up for you. This is also one service that we offer,

opening bank accounts for the companies. And where would the bank account be? The bank account can be in, well, we have several banks in Belize, we have banks in social health, and we have banks in other countries in the world. Can you open a Swiss bank account? Yes, we can do that. And we can open a bank account for you there. So I can create a bank account in Switzerland that's tied to my shell company in Belize. Yes, you can do that. How quickly can I do that? Setting up a company is quite fast. From the moment when we receive your documents scanned by email, we can open a company in a couple of days. In one week, it can definitely be done. I could talk to you in Latvia and register a company in Belize that has a Swiss bank account, and I could do that in a week.

Yes. We're in the 21st century, and all that is possible. Yeah. That's such an ambiguous thing. We are in the 21st century, so all that is possible. On the one hand, yes, money flows around the world in the 21st century like it never has before. But on the other hand, you know, the 21st century, this is supposed to be when there's far more controls, far more regulation and scrutiny of that money. And that's sort of at the heart of what you and I have been struggling with ever since we found out just how easy it is to set up these accounts. What are we supposed to think about this? And we've consulted NPR's lawyers, New York Times lawyers, other people.

And as far as we can tell, everything that – certainly everything we did, everything Anna and Richard and the other companies we contacted did is absolutely perfectly legal. It's legal in America to set up a company in another country. It's legal in those countries. It's legal for them to help us set up these companies. It's legal to set up bank accounts in another country. It's legal in those countries. It's legal for them to help us set up these companies. It's legal to set up bank accounts owned by those companies. All of this is totally above board. But at the same time, it feels sketchy, weird, that this whole system is set up to hide things. The word confidentiality comes up all the time on all the websites we saw in every conversation we had. This is totally confidential. Nobody will see it.

No government will see it. No authority will see it. And it's just hard to think of lots and lots of legal reasons why someone would want to hide their money, or at the very least, lots and lots of ethical, reasonable, non-sketchy reasons to hide their money, or at the very least, lots and lots of ethical, reasonable, non-sketchy reasons to hide their money. It's hard for me to think, why exactly would I want an account in some country I'm never going to visit that nobody can see access to, that no authority can see access to? Well, I can think of some legitimate reasons why you might want to, you know, like have a company in Belize with a bank account in Switzerland. You can imagine maybe, you know, you've been in prison or you're a recovered drug addict and you want to do business, but you don't want people knowing your history or

seeing your name in the company. Or maybe you're bidding on a contract and you're a young guy just sitting in your living room. You don't want everyone to know that it's just you in your company or a bigger business that's, you know, wanting to explore expanding into some new market and doesn't want people to know that they're there. And the other argument you hear is, you know, really huge multinationals that has business all over the world. They don't want to bring it back here and pay any unnecessary taxes and go through complex U.S. regulation every time their Bulgarian subsidiary sends some parts to their Romanian factory and then that stuff is sold to some Tajikistan client. They say, oh, it's just a lot easier. It's a lot more convenient. But that raises a question. Why are so many of the products that these people wanted to sell to us designed specifically to obfuscate,

not designed to make life easier, more convenient, but the opposite, to make life more complex, to hide things from people. Like, for example, we learned about shelf companies. There's shell companies, but shelf companies are companies literally sitting on a shelf. They register lots and lots of just generic companies. And then you could buy one two years later, five years later. That way, it will look like, hey, Hanako was founded in 2007. You didn't just found it yesterday. It didn't just open yesterday. It's been around for a long, long time. yesterday. It didn't just open yesterday. It's been around for a long, long time. Or maybe you're a big company. You're thinking of going into some part of the world where you haven't been competing before. And you don't want people to know you're this new arrival, or you don't want your competitors

to figure out what you're doing. So you buy an older company and make it seem like there's nothing new going on here. Pretty much every service that Richard and Anna tried to sell me on top of my business had to do with basically trying to mislead people about what my business is, which, again, totally legal, but just the nakedness of it feels weird. Like Anna told me about this one service that is really popular called nominee services. And she says, you know, just think if you don't want an official record of you being the owner of your company, we can help you with that with nominee services. If you choose this service, you can nominate us to be the directors of your company and also shareholders of your company. And in all public documents where the director's name appears,

it will be our name. Wait, you would be the directors and shareholders of our company? You can choose this service. It's a service that you pay for. It's only a service that we offer. If you don't want your name to appear in any company's documents, you can choose us to be nominee directors or shareholders. But if I did that, then it looks like the company is run by you guys, by the names on the documents.

Nobody knows that I'm involved in the company. Yeah, that is the idea. Absolute confidentiality. This blew my mind. You can hire a board of directors to be the public face of your company. And it's not just Anna who offers this service. No, everyone we talk to. This is clearly a nice little moneymaker,

although not a huge one. They make like 600 bucks or something to be your board of directors, to be your public-facing shareholders. And then they sign with you a totally private, invisible power of attorney. So they are the public face, but you run the company, although no one needs to know that you run the company. And it clearly was a popular feature, which is crazy when you think about it.

We saw dozens and dozens. We assume there are thousands of these companies helping people set up companies, which makes you think when you do the math that the Caribbean islands, the Channel Islands, all these offshore havens must be filled with people who are the boards of directors of thousands and thousands of companies out there that they know nothing about, have never met the people involved, have no actual activity with that company. Yeah, when I asked Richard in Belize about this, he told me about his nominee services, too. And when I talked to him, I was like, who does this? Like, who actually would be the director of my company? And he said, oh, Desiree is a popular choice. Desiree? Desiree?

She could be the director of my company? Yes. So she gets used a lot. She's the director of a lot of companies. Yeah. Is that legal? That's totally legal? That's totally legal.

It's legal. Can I have shareholders somewhere other than Louise? Not to my knowledge. I'm sure you could, but we've never done it like that before. Okay. Richard, who are you? Like, are you in Belize? Yes, I'm in Belize. Do you mind my asking how old you are?

I'm very young. What's very young? 21 years old. You're 21? Yes. And so all day long you basically are like taking calls and emails about people wanting to set up offshore companies? Yes, basically that's it. Do you like the job? Yes, I love it. You do? Best job I've had so far. Best job you've had so far? Out of high school I wanted to do this job.

You graduated from high school and your dream was to register offshore companies? My dream was to venture into a job that dealt with law and work my way up from there. Richard wants to work his way up to be a lawyer. He's saving money working in this job so that he can get himself to Barbados to get an associate's and then to Jamaica to get a law degree. And in the meantime, he's spending his days talking to American surgeons who want to hide their money in case they get sued for malpractice or people, you know, mostly Americans avoiding taxes. And he says landing a job in the offshore sector is perfect because all the law firms and beliefs that he wants to work with have huge offshore departments. So it's really great job experience.

And we ended up going with Richard to register our company, right? I was out of the office for a few days. We had all these different candidates. And when I came back, you're like, Richard, we're going with Richard. I love that guy. Yeah. So we chose his company and he sent us over the forms. You basically have to fill out the intended use of your business in this form and the countries you expect you'll be operating in and then which add-on services you'd like. You know, like, do you want a board of directors? Do you want an aged company? And you need to tell them what you want your name to be. Yeah, we had fun trying to come up with a name. We looked at the names that AIG had for all its offshore entities that became public as part of all the

AIG scandals and OmniVantage Insurance was a favorite. And one of the companies that I looked at, they offered us several of these old existing shelf companies. So we could have been Stock Reward Corporation, Technologic Incorporated, Traders Bridge Inc., Technosmart Inc. Kebab International. I liked that one. Zrein Holdings. Your slogan could be, it's spelled like urine, but with a Z. Right. And why would anybody want to buy a company called Marcel Symes Consulting, who is not Marcel Symes? We've been joking that most of the offshore companies' names follow two patterns. They're either as generic and boring as possible, like, I remember, Universal Exports in the Bond franchise, or they're names that turn out to be often a secretly dirty inside joke.

Or you could just go with a really juvenile pun, which is essentially what we decided to do at Planet Money. At some point, I was talking to Zoe about opening this offshore company in Belize, and she said, you're opening an offshore company in Belize? Unbeliezable. And it just kind of stuck. I have to say, the more times that I write unbeliezable on formal corporate documents, the better that name gets. It just never gets old. You know, Hannah, I can't say I'm a huge fan of unbeliezable. I feel like we have a certain gravitas that we're trying for here, that Unbeliezable blocks. But I'm on board. I'm now, you know, while I'm not in any way a board member or stockholder of Unbeliezable, I am proud to be associated with it. It will, of course, have a Belizean board of directors.

We did ask for Richard to be on our board, but he says he's not sure he's allowed to yet because he's still a new staffer there. So we'll probably get Desiree, we assume, and she may or may not have anything to do with Unbeliezable's business operations. Now, we definitely opted for a bank account in a different country. So you don't have the bank account in Belize. That way, if the IRS is going after you, they have to file court orders in two jurisdictions, Belize and the other country as well. Not that we're planning to evade taxes. Not that we're evading taxes. Our books are open. So right now, our options are Cyprus, Panama, St. Vincent, Latvia, and Switzerland. I've also been looking into Singapore and Bulgaria.

But I have to say, setting up the bank account has actually been the most complicated part. You know, getting the business and getting the nominee services, I just have to send some documents. But getting the bank account added this whole layer of complexity. Richard and I have been in constant communication. I had to get my passport notarized and fax it to him and send him a reference letter from my bank. And my bank wrote a reference letter that my bank. And my bank wrote a reference letter that Richard's company then rejected and said it didn't include enough detail. And my bank is now saying that they don't want to send a letter with more detail. So Richard said, get a letter from your accountant and a lawyer. So I went to my accountant and asked

for a letter, which, by the way, is embarrassing to ask your accountant for a letter for your offshore Belizean company called Unbelizable. And I don't have a lawyer, so I don't know what to do about that. It's actually been more complicated than advertised, I have to say. Richard and I are a week and a half into our relationship, 28 emails in, and the email subject has changed from, you know, RE, thanks for your help, to RE, due diligence. And Richard keeps assuring me that the company should be registered within the next few days. We just have to do our due diligence. Now, we had our little experiment with a few companies, but we found this guy, Jason Sharman. He's a professor at Griffith University in Australia who sort of did what we did wholesale.

He wanted to find out in a statistically significant way how the rules are being followed. So he applied to have corporations incorporated all over the world. And he had a very similar experience to us, although I have to say with one shocking difference. Originally, I did about 50 approaches. And in 17 of those cases, the providers were happy to sell me a company without any identity documents at all, which is in clear violation of international rules.

No passport, no ID number, nothing. No, no, no passport, no ID number, no driver's license, nothing at all. So really, they had no idea who I was at all. He did say that most countries did require ID to register a company, except he said there was this one country that stood out as the most willing in all the world to allow people to open companies with no documentation whatsoever. So what is that most permissive, the most secret loving country in the world? The United States. So in fact, the standards of the U.S. were even lower than those in Somalia.

It's easier to be totally anonymous as a business owner in the United States than anywhere else. The easiest place in the world to register a business anonymously is definitely the United States. The easiest place in the world to register a business anonymously is definitely the United States. The four sort of most lax states were particularly Delaware, Nevada, Wyoming, and Oregon. At first, Jason Sharman looked at his data and thought, This must be wrong. I must have made some mistake in the way I'm going about this. But then he tried again. He got students to do it dozens and dozens of times. I think by the end, he's done it over a thousand times in the U.S. and around the world asking, hey, I'd like to set up an offshore company and I don't want to show you any identification. And again, we found that places like the Cayman Islands and the British Virgin Islands and Jersey and one of the Channel Islands were very, very strict.

in one of the Channel Islands. We're very, very strict, and people would email back and say, look, we'll sell you a company, but you must send us a scanned, notarised copy of the picture page of your passport so we can keep it on file so we know who you are. But in the United States, the answer was, sure, this should take you about 10 minutes. Just fill in the details of the company you want on the website,

transfer the money, and we'll send you the company today. I think it would be interesting if you tried to set up a company and compare how many documents they ask for compared to how many the people in Belize ask for. Thank you for calling Delaware and Decor. Hi, I wanted to talk to someone about registering a company in Delaware. So, obviously, we had to take Jason up on his challenge. Yes, I called a couple places that register companies in the U.S.,

and I reached one guy who talked to me, but he wouldn't let me record. But our conversation was pretty brief, so Adam, you and I can basically sum it up right here. It went something like this. Hello, I'd like to set up a company in the U.S. I would recommend a Nevada or a Wyoming company. Nevada is $599. Wyoming is $529. Or you could go with Delaware. That's $519. Delaware it is. What documents do you need? We'd need the name of the company. We'd need the name of the manager and the address where you want the documents sent. What about identification? We don't need any identification. We'd need the name of the manager and the address where you want the document sent.

What about identification? We don't need any identification. We just need you to give us the name of the company, give us a name for the manager, and where do you want the document sent? And that was pretty much it, Adam. We are now the proud owners here at Planet Money of Delahoo. Oh, man. Love these cute names. That one was Caitlin Kenney. And I have to say, setting up Delahoo, it only took one day. It was three emails. And it would have been just one email, except I had some. And by the way, in the tables of offshore jurisdictions, Delaware is listed. Offshore these days has shifted from meaning an actual island offshore somewhere to just

any place in the world where it's really, really easy to set up corporations that charges little or no taxes, that sort of thing. And so we've been kind of giddy, like, oh, wow, we now have two companies, blah, blah, blah. But talking to Jason Sharman, he reminded us, like, while many, many uses of offshore accounts are likely perfectly legal and legitimate, there are some really, really disturbing things that can be done when you own a thoroughly anonymous U.S.-based company. Given that a company is a legal person, you can use this company to own property. You can use it to lease ships or aircraft. But as I say, own shares do all the sorts of things that in some ways a real individual

can do. Jason told us Unbeliezable could be the owner and director of Delahoo. Or we could do it the other way around. The totally anonymous and secretive Delahoo could be the owner of director of Delahoo. Or we could do it the other way around. The totally anonymous and secretive Delahoo could be the owner of Unbelievable. They could both own bank accounts in foreign countries, or they could together create some third company with this kind of layered ownership,

and that could own a bank account in some other country. There are endless possibilities. Jason says that now that he, like us, has seen the offshore world from the inside, he feels a lot less nervous about these offshore tax havens, the Cayman Islands and the Channel Islands and Belize and all of those places, because he says, you know, certainly not a perfect system. But there are more rules that are more thoroughly enforced. Due diligence is happening, at least in some cases. At least in some cases. But he said what made him really terrified, really nervous, much more than he expected, is what's going on in the rich countries, the countries bossing the rest of the world around. We first set up our shell companies back in 2012. And since then, Delaware has actually been unseated as the most sought-out secrecy haven in the United States. That distinction now belongs to South Dakota,

where Americans and foreigners alike have been flocking to set up similarly Baroque ownership structures that allow them to keep wealth hidden for generations. South Dakota was heavily featured in this week's leaks in the Pandora Papers. There have been some efforts at reform here and around the world in recent years, most notably a shared reporting system that some countries adopted after the U.S. cracked down on tax havens like Switzerland. But the U.S. doesn't require states like Delaware or South Dakota to participate. And the U.S. is now the number two tax haven in the world, according to the Tax Justice Network,

putting us only behind the Cayman Islands. If you are going to Comic-Con in New York this Friday, we're going to be there. Kenny and Robert will be doing a panel about Microface. There will be behind-the-scenes outtakes and updates on the making of the comic book, and also about a microface musical in the works. That is this Friday at New York Comic Con at 3.45 p.m. Email us, planetmoney at npr.org, or find us on Facebook, Twitter, Instagram, TikTok. We're at Planet Money.

Our show today was produced by Dave Blanchard with help from Isaac Rodriguez. Louise Story was consulting senior editor. Planet Money's supervising producer is Alex Goldmark. I'm Alexi Horowitz-Ghazi. This is NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.