Lorq writes, "This brilliant piece of investigative research shines a light on one of the mechanisms of wealth inequality — the secretive field of wealth management for the one percent. It's one thing to hand-wave vaguely about wealth disparity; it's quite another to become a certified expert in its procedures and institutions and then report back to the rest of us — which is what Brooke Harrington does here. An audacious study of the enablers of the rich."
Looking at a costly divorce? No problem—just hire a wealth manager to put your assets in an offshore trust. Then the assets are no longer in your name, and can't be attached in a judgment. Even if a foreign court sought to break your trust, if you have a clever enough wealth manager, you can be made effectively judgment-proof. Consider the case of the Russian billionaire Dmitry Rybolovlev, who has just settled what has been termed "the most expensive divorce in history." Although a Swiss court initially awarded half of Rybolovlev's roughly $9 billion fortune to his ex-wife, Elena, an appeals court later ruled that most of those assets are untouchable in the divorce settlement because they are held in trust or are otherwise inscrutable to the law. (The amount of the agreed-upon settlement has not been disclosed.)
Vulnerable to lawsuits? Have a wealth manager put your fortune into a Cook Islands asset-protection trust, as the Rothschilds and the less well-known wealthy families of the world have done. In effect, such trusts make these fortunes essentially immune from the application of inconvenient national laws. No litigant on earth has been able to break a Cook Islands trust, including the U.S. government, which has repeatedly been unable to collect on multi-million-dollar judgments against fraudsters convicted in federal court. These include infomercial king Kevin Trudeau, the author of a series of books on things "they" don't want you to know, as well as an Oklahoma property developer who defaulted on his loans from Fannie Mae. Since 2007, the two have owed Uncle Sam $37.5 million and $8 million respectively, and they have employed some clever wealth-management strategies to avoid paying those judgments. With their fortunes secure in Cook Islands trusts—on paper, at least—there is no way for the U.S. government to force payment unless it wants to send a legal team on the 15-hour journey to Rarotonga (capital of the Cook Islands), where the case would be argued under local laws. Needless to say, those laws are not very favorable to foreigners seeking to access the assets contained in local trusts.
Tax avoidance—the perfectly legal practice of minimizing one's tax obligations—is really the least of the wonders that wealth managers achieve for their clients. They can also help clients swap nationalities when holding the passport of a particular country means submitting to undesirable requirements. Remember when the Facebook founder Eduardo Saverin renounced his American citizenship for a Singaporean passport? Classic wealth-management strategy. And thanks to the expanding number of practitioners, U.S. citizenship renunciations are at an all-time high, and growing. Finally, wealth managers can give their clients a kind of financial immortality, in the form of inheritances tied to the performance of certain duties by the heirs, such as going into the family business or producing grandchildren.
Inside the Secretive World of Tax-Avoidance Experts
[Brooke Harrington/The Atlantic]