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February 1, 2018 By Helen Brown Leave a Comment

Secrecy World

This week’s article is about a new keen interest of many of us on the HBG team, and especially those of us in the HBGBookClub: offshore finance. HBG’s own Mary Taddia sped ahead of all of us and read the whole thing to share her insights and – I hope – pique your interest enough to join us in reading it! ~Helen

During my time in prospect research, I’ve had to familiarize myself with ongoing trends in the philanthropic and financial world. As a former English major, I am usually much more comfortable discussing the works of Gabriel García Márquez than I am talking about SEC forms.

But recently, my interest has been piqued by several intriguing books on wealth management and offshore investing. At HBG we are constantly reading and recommending articles, books, podcasts, and websites on these subjects to each other, (and you may have heard that we’ve formed a book club!).

The book we’re reading now (and one of my new favorites) is Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite by investigative journalist Jake Bernstein. Bernstein shines a light on the shadowy world of offshore wealth and the Panamanian law firm Mossack Fonseca (MossFon), which played a leading role in the leaked document trove called the “Panama Papers.”

Reading Bernstein’s book has given me a much clearer understanding of offshore wealth and how high net-worth prospects may use it as an investment strategy. (Note that I did not say “ultra high net worth prospects”—more on this later!) Secrecy World also introduced me to the concepts of bearer shares, nominee officers, and art freeports. Even if you are already familiar with these terms, Secrecy World is worth a read.

Bernstein’s book recounts the massive leak of MossFon client’s financial records. It was the largest data leak to date (bigger than WikiLeaks), containing 2.6 terabytes of data and 11.5 million files. These records were obtained from “John Doe,” an unnamed source who provided them to the German newspaper Süddeutsche Zeitung. The newspaper shared the info with The International Consortium of Investigative Journalists (ICIJ). In turn, the ICIJ enlisted the help of over 300 reporters and news outlets from 76 countries on six continents to create a publicly-accessible database, which can be found here: https://offshoreleaks.icij.org/. (Information from the Paradise Papers and the Bahamas Leaks is also included in the database.)

Bernstein is a former member of the International Consortium of Investigative Journalists (ICIJ). In April 2017, the ICIJ, the McClatchy D.C. Bureau, and the Miami Herald won a Pulitzer Prize for their work bringing details of these leaked documents to the public.

The Panama Papers contains over 360,000 names, including the late father of U.K. Prime Minster David Cameron; Nawaz Sharif, the former prime minister of Pakistan; Dick Cheney; the children of the president of Azerbaijan; Gianni Infantino, president of FIFA (The Fédération Internationale de Football Association); and Simundur Gunnlaugsson, among many others. Gunnlaugsson was the former prime minister of Iceland who stepped down from office after his involvement with MossFon and offshoring became public.

Bernstein devotes the last chapter of Secrecy World to President Trump and the Trump Organization’s offshore dealings and Trump’s financial ties to Vladimir Putin, who is also featured in the Panama Papers. A book that at times reads like a spy thriller, Secrecy World also discusses Iceland’s financial crisis, MossFon’s dealings in China and Luxembourg, and the personal stories of former MossFon employees and ICIJ investigators chasing down leads.

Why people offshore their wealth

Offshore investing is a controversial subject. Though legal, many economists, activists and even governments say offshoring contributes to global wealth inequality. Bernstein states that the U.S. alone loses nearly $70 billion a year due to the shifting of corporate finances to tax havens.

Why would anyone choose to invest offshore? Anonymity, asset protection, control, liquidity, and currency diversification, for starters. But the main reason is tax avoidance. According to a leaked memo from MossFon, 95% of its work consisted of selling vehicles to avoid taxes.

It’s important to remember that anyone who invests offshore isn’t necessarily partaking in criminal activity; establishing an offshore account is completely legal. Tax avoidance is legal; tax evasion is not.

However, once an investment entity is up and running, there is very little oversight. Some investors may continue to abide by the law and use these accounts, trusts, and companies simply to maintain anonymity and control. Others use them to evade taxation or to engage in money laundering or drug smuggling.

Ethical Grey Area

Offshoring is a very grey zone. And $8.7 trillion, or about 11.5% of the world’s household financial wealth is hidden in this grey zone.

“We are not angels, but we are not devils either,” states Ramón Fonseca at the end of Secrecy World. Fonseca’s ambiguous quote highlights the moral complexity of this issue.

As Benjamin Franklin says, “In this world nothing can be said to be certain, except death and taxes”, though if you are a high net-worth individual, you can avoid taxes and benefit from the financial loopholes offshore investing offers.

What kind of people make offshore investments? Our prospects: hedge fund managers, private equity investors, art traders, and real estate developers, to name a few. But entry into the offshore world is not only for the uber-wealthy, or even the merely wealthy; setting up an offshore company in the Seychelles with a bank account in Cyprus costs less than $2,500.

How art investors benefit from offshore tax havens

Secrecy World has a fascinating chapter on the $30 billion dollar a year art industry, where over 50% of all sales are private. Bernstein introduces readers to the Geneva Freeport, a highly-secured, private, climate-controlled 600,000 square foot storage facility which contains over 1 million works of art, antiques, and other items from the around the globe.

The estimated value of the freeport’s holdings is $100 billion. Any object housed in the freeport is not taxed until it leaves the premises, meaning an investor could buy a painting in New York and have it stored indefinitely in Geneva without paying a penny of tax. Freeports also exist in Luxembourg, Monaco, Singapore, Beijing, and Delaware.

Identifying Prospects With Offshore Wealth

Pay close attention to your prospects with assets in (or pointing to) the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Cyprus, Curaçao, Guernsey, Hong Kong, Jersey, the Isle of Man, Luxembourg, Malta, Mauritius, Monaco, Singapore, the Seychelles, and Switzerland. And don’t forget about prospects with ties to Delaware and Nevada here in the States.

It’s also important to keep in mind that we may be underestimating the estimated net assets and gift capacity of prospects who have offshore wealth. According to a recent academic paper on the subject, up to 40% of a high net worth individual’s wealth may be hidden offshore.

Though Secrecy World and the Panama Papers have raised awareness about the world of hidden finances, it is by no means a death knell for the offshore wealth industry. UHNWI and HNWIs will continue to find new ways to invest and protect their assets, whether it is through an LLC in the BVI, a shell company in Mauritius, or a foundation in Nevada. MossFon may have shuttered many of their offices due to the Panama Papers, but new companies are sprouting up all over the globe. According to Bloomberg article published last month, the U.S. is the world’s 2nd largest tax haven, sandwiched between Switzerland in the top spot and the Cayman Islands in third.

What does this mean for us?

As information gatherers, it’s imperative for us to stay on top of emerging financial trends so we can provide value and insight to our end users. Reading Secrecy World is a great place to start, but for those of you who prefer a big-screen version, stay tuned for the film adaptation. Director Steven Soderbergh and Netflix are in the running to create a movie based on Secrecy World and the Panama Papers.

FOR FURTHER READING

Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite by Jake Bernstein (Henry Holt and Co., 2017)

Jake Bernstein’s website: http://jakebernstein.net/

The International Consortium of Investigative Journalists (ICIJ): The Panama Papers https://panamapapers.icij.org/

BBC: “Panama Papers Q&A: What is the scandal all about?” http://www.bbc.com/news/world-35954224 (April 6, 2016)

NPR Interview with Jake Bernstein: https://www.npr.org/2017/11/20/565319852/journalist-explains-how-panama-papers-opened-up-the-worlds-illicit-money-network (November 20, 2017)

Oxfam’s List of Tax Havens: https://www.oxfam.org/en/pressroom/pressreleases/2016-12-12/worlds-worst-corporate-tax-havens-exposed-oxfam-report-reveals (December 12, 2016)

“Income inequality and offshore tax dodging: The rich are richer than we thought” https://journalistsresource.org/studies/economics/inequality/income-inequality-offshore-tax-haven-research. Journalist’s Resource, a project of the Harvard Kennedy School’s Shorenstein Center and the Carnegie-Knight Initiative.

Filed Under: News, Researching Individuals Tagged With: Jake Bernstein, Mary Taddia, Mossack Fonseca, Secrecy World

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David’s career in prospect research began in 2009, as a graduate research assistant at the Shippensburg University Foundation. In 2011, He became a development researcher for the University of Virginia. In 2015, David became assistant director of prospect research at the University of Baltimore, serving for 3 years. Recently, he was the director of development for Trees Forever. David Joined the Helen Brown Group as a research assistant in January 2020. He earned a B.A. in Theater at Indiana University of Pennsylvania and a M.A. in Applied History at Shippensburg University. David is a member of APRA and APRA Great Plains.

Kenny has worked in development since 1999 and has been involved in prospect research since 2002.

Prior to joining The Helen Brown Group, he was the director of donor and prospect research at the United Way of Massachusetts Bay. Kenny is a member of APRA and NEDRA.

Tara first began her career in development in 2002 supporting the Major Gifts department at Simmons College, and ultimately went on to serve as Assistant Director of Prospect Research. Since that time, she has also worked as a Senior Research Analyst at MIT, as Associate Director of Prospect Management and Research at the Harvard Graduate School of Education, and as Director of Development Research at Combined Jewish Philanthropies (CJP).

Tara originally joined the Helen Brown Group team in 2007 and served as a Research Associate and ShareTraining coordinator until 2008 – she rejoined the company as a Senior Researcher in 2013 and was promoted to her current role in 2018.

She has been an active volunteer with NEDRA for many years and served on the board of directors from 2010-2016. During her time on the NEDRA board, she served in many different roles, including terms as Vice President, Secretary, Chair of the Website and Technology Committee, Chair of the Volunteer Committee, and as Chair and Editor of NEDRA News. She is currently a member of the NEDRA Bootcamp faculty. In addition, Tara has also been involved as a volunteer with Apra, serving stints on the Membership Committee, Chapters Committee, and Bylaws Task Force.

Angie began her career in development in 1999 at Virginia Tech in Corporate and Foundation Relations and later in prospect research at the University of Connecticut Foundation.

A graduate of the University of Tennessee at Martin, her experience includes grants management at the University of South Carolina, program evaluation for South Carolina Research Authority and human resources analysis for Nissan North America.

She returned to development in 2007 and worked in various prospect research positions at Vanderbilt University, including Associate Director. She was named Director for Vanderbilt University Medical Center’s research office in 2015, and joined The Helen Brown Group in 2016.

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Josh began his career in development as the Phonathon Coordinator at Keene State College. He then worked at non-profit consulting firm Schultz & Williams in Philadelphia.

He started his research career at the University of Pennsylvania as a Research Assistant in 2005. He then moved over to the Wharton School of Business, where he became the Associate Director, Research and Prospect Management. Josh joined the Helen Brown Group in 2016.

Josh is also a Colorado licensed Realtor and graduate of Lehigh University.

In March 2017, Kristina joined the Helen Brown Group as a Research Associate. Before joining HBG, she was the Research Manager at Pratt Institute in Brooklyn and an Associate Manager of Prospect Research at City Harvest, a food rescue organization. Kristina started her non-profit career as a legal assistant at the Metropolitan Museum of Art in 2004.  She is a member of Apra and Apra Greater New York. She was Apra Greater New York’s Director of Programming from June 2014 to May 2016. Kristina graduated from The University of Chicago and the Bard Graduate Center.

Grace began her career in development in 2001 as Executive Assistant to the Chief Development Officer with Brigham and Women’s Hospital (BWH), a Harvard Medical School-affiliated academic medical center.

In 2003, she became a prospect researcher for the BWH principal and major gifts team and spent the next 11 years in various research positions with BWH, culminating as Assistant Director of Prospect Research. She has been affiliated with The Helen Brown Group since January 2014.

Heather began her career in 2002 as a prospect research coordinator for the Rocky Mountain Elk Foundation and then moved to Carroll College in 2004.

In 2005, Heather began working on her own as a freelancer and eventually started her own consulting firm, Willis Research Services, in 2007. She joined The Helen Brown Group in 2012.

Heather is a member of the Association of Professional Researchers for Advancement and the Montana Nonprofit Association.

Jennifer began her career in development at her alma mater, Wheaton College, where she was an administrative assistant for the major gifts department.

She joined The Helen Brown Group in March 2008. She earned a master’s degree in library science from the Southern Connecticut State University in May 2009. Jennifer is a member of APRA and NEDRA.

Rick has been a member of the Helen Brown Group team since 2005. Prior to joining HBG, Rick was director of research at St. Paul’s School in Concord, New Hampshire. Rick has worked in development since 1996, both in prospect research and major gifts fund raising. His experience includes the University of Vermont, Phillips Exeter Academy and St. Paul’s School.

Rick is past president of NEDRA and is a member of and frequent volunteer for APRA.

Josh began his career in development as the Phonathon Coordinator at Keene State College. He then worked at non-profit consulting firm Schultz & Williams in Philadelphia.

He started his research career at the University of Pennsylvania as a Research Assistant in 2005. He then moved over to the Wharton School of Business, where he became the Associate Director, Research and Prospect Management. Josh joined the Helen Brown Group in 2016.

Josh is also a Colorado licensed Realtor and graduate of Lehigh University.

Mandi has worked in prospect research and management since 2006. She began her development career as a research analyst in development research at City of Hope, an NCI-designated comprehensive cancer center in Los Angeles. From there, she became the manager of prospect development at Huntington Memorial Hospital, a community hospital in Pasadena, CA. Most recently, she was the associate director of prospect research and management at Occidental College, a private liberal arts college in LA.

Mandi has a BA degree in print journalism from Southern Methodist University and a master’s degree of library and information science from UCLA.

She joined the Helen Brown Group in May 2019.

Kelly began her career in development in 2008 as an administrative assistant in Major Gifts at Wheaton College.

In 2010, she became a research analyst at Dana-Farber Cancer Institute in the Division of Development & Jimmy Fund as part of the prospect identification team. Kelly joined The Helen Brown Group in 2013.

She is a member of APRA and NEDRA.

Jayme began her career in development in 2008 at the Rutgers University Foundation, where she spent the next seven years, first in prospect management and then prospect research. She spent several years at Monmouth University as their senior prospect research analyst, working with the fundraising staff, university president, and top leadership. She has worked as both a volunteer and consultant for non-profits in the areas of research and writing.

She earned a bachelor of arts degree from Drew University and a master of communication and information sciences from Rutgers University. She is a member of APRA.

Jayme joined The Helen Brown Group in April 2019.

Julie has managed finances for The Helen Brown Group since its founding.

In her spare time, she is an editor for the PBS series Masterpiece at WGBH. Julie was nominated twice for an Emmy award for her work on the PBS show Zoom.

Heather began her career in development in 2001 as a prospect researcher for National Wildlife Federation (NWF). She was with NWF for more than thirteen years, including nearly five years as director of research and analytics. Heather is a former secretary of the board of directors of APRA-Metro DC.

She joined The Helen Brown Group in October 2014.

David began his career in development at The Gunnery school in northwest Connecticut in 2011, where he worked in database management and prospect research. Subsequently, he joined the College of Saint Rose as a development research analyst before leading Albany Medical Center Foundation’s prospect research efforts as Associate Director of Prospect Research. He has a Bachelor’s Degree in Sociology from Siena College and is a member of APRA and CASE.

Michele began her career in development in 2012 when she joined the UC Berkeley corporate and foundation relations team as a development analyst. She spent a year and a half at Cal before returning to UC Davis as a prospect analyst. She was with the prospect management and relations team at UC Davis for almost three years prior to joining the research and relationship management team at George Washington University as a Senior Prospect Analyst in 2016.

Michele received her BA in creative writing from Florida State University and her MA in higher education leadership from CSU Sacramento. She currently resides in Northern Virginia, is a member of Apra International, and serves as the social media chair for Apra Metro DC. Michele joined The Helen Brown Group in July 2018.

Angie has worked in development since 2002, partnering with a wide range of nonprofit institutions. She began her professional career at Vanderbilt University in research and prospect development.

She has also worked with a number of community nonprofits in front-line fundraising, grant-writing, and event management. Angie holds an MPA in Nonprofit Management from the Indiana University Lilly Family School of Philanthropy and a BS in Journalism from Middle Tennessee State University. She resides in Nashville, Tennessee, and is a member of AFP Nashville and APRA MidSouth, where she has been active on the executive team.

She joined The Helen Brown Group in October 2015.

Maureen has been a part of the non-profit world since 1991. She started out in annual giving at Harvard Law School and continued her career as director of annual/special gifts at UC Santa Cruz.

In 1999 she made the switch from front-line fundraising to serve as director of prospect research/management at Bentley University and in 2001 began her role as administrator for the North American Foundation for the University of Manchester. She became part of the HBG team in September of 2011.

Helen has been a development professional since 1987. Her previous experience includes The University of North Carolina at Chapel Hill, the Albert Einstein Institution, Boston College, the Harvard School of Public Health and Northeastern University.

Currently she works with a variety of clients to establish, benchmark and re-align research departments; identify major gift prospects; and train researchers and other fundraisers through on-site and web-based training services.Helen is a former member of the board of the Association of Professional Researchers for Advancement (APRA) and is past president of the New England Development Research Association (NEDRA). In 2006 she received the NEDRA Ann Castle Award for service to the prospect research community.

Helen is Special Advisor on Fundraising to the North American Foundation for the University of Manchester and is a member of the board of directors of Factary Ltd. (Bristol, UK). She is a member of NEDRA, APRA, the Association of Independent Information Professionals (AIIP), Women In Development, the Association of Fundraising Professionals (AFP) and Researchers in Fundraising (UK).

Helen is a frequent speaker and has led seminars for a number of professional associations, including Action Planning, AFP, APRA, the Council for Advancement and Support of Education (CASE), NEDRA, RIF, the Planned Giving Council of Central Massachusetts, the Georgia Center on Nonprofits, the International Fundraising Congress and Resource Alliance.

Helen is also co-author (with Jen Filla) of the book, Prospect Research for Fundraisers (Wiley & Sons, 2013).