Offshore – only for the big and very wealthy?

There are more people involved in offshore activities– that’s the conclusion in a recent NUPI study – within the STEAL project (Systems of Tax Evasion and Laundering). When capital moves between national entities, it crosses a legal and regulatory no-man’s land. Tax rules varies between jurisdictions and so do the openness regarding exchange of information. Multinational corporations and banks as well as the very wealthy have long taken advantage of this situation by crossing between the different entities. This NUPI study concludes that many more players are engaged in these activities – the expatriates. All in all: What challenges do these activities represent for the tax income for states, their financial policy and the well being for their inhabitants?

In the NUPI Policy Brief Expatriates in Global Wealth Chains, the two researchers Leonard Seabrooke and Benjamin de Carvalho, state that the offshore world also includes an everyday side. In this world, particular segments of a transnationally mobile population use offshore banks as their primary way of handling their financial affairs. Though, this population are not the corporate and political barons one may imagine. In earlier studies of the offshore world, these ‘everyday’ groups have not been focused at all.

Who are the expatriates?

Rather, they are more ‘ordinary’, they are expatriate ‘mass affluents’, wealthy enough for financial institutions to be encouraged to help them minimize tax liabilities, but not sufficiently wealthy to afford, their own wealth managers. This ‘everyday offshore’ layer of ordinary internationally working people, so the researchers have found, constitutes a new typology in a world of a transnationalized economy.

The mass affluent expatriates are mostly people working abroad for a shorter or longer period of time - like diplomats, employees in a transnational company, international NGOs or in any international institution, and even pensioners. Before leaving the home country, various questions will turn up – related to health, housing, living costs in a new country, currency, property rights – and taxation.

Why choose offshore banks?

A number of expatriates then choose an offshore operator, motivated by a wish to minimize their tax liabilities, but also to promote stability and certainty for their financial management. They choose someone who can navigate between different regimes of rules, they choose their international bank. Typically, this will be a financial institution supplying offshore financial products though placing the responsibility for the client’s regulatory liabilities on the clients with a “don’t ask, don’t tell” attitude.

While the financial institutions may be legally bound to do so, this nevertheless contributes to make these bespoke products more attractive to clients seeking to evade domestic taxation. These particular conceptions of how the economy should work are at odds with most of the work on everyday politics and everyday life and financialization, which takes a domestic.

Furthermore, these modular wealth chains do not operate in the shadows of the offshore world, as faceless shell companies, but under active scrutiny from regulators, according to Seabrooke and de Carvalho.

Methodology of the study

It is difficult accessing data on how individuals enter in contact with financial institutions providing offshore services. These relations are confidential.

The research method in this NUPI study was therefore bound to be of a more exploratory character. The difficulty with the topic is that while tax evasion is illegal in most jurisdictions, placing capital offshore is not illegal in itself. Using ICIJ data (account leaks from Swiss banks) was therefore complicated for the purposes of the present study - to identify and understand the use of offshore banking by ‘ordinary taxpayers’.

Why online searches?

In order to gain information about how these offshore products are marketed and how individuals come into contact with them, the NUPI researchers tried to retrace steps a soon-to-be expat would hypothetically take. Reasonably, the researchers expected such a process would involve searching for financial solutions online.

By searching extensively on Google, the most visible actors turned out to be HSBC Expat, Barclays Wealth, and Standard Bank. Further, the researchers assumed these are central in framing the understanding of offshore services. They are likely to be some of the first actors a potential expatriate encounters when searching for providers.

HSBC Expat offered the most fruitful case for an exploratory study, as it was the website with the strongest presence in the researchers online searches. Additionally, the HSBC website also offered a host of material, which is integrated with services of other actors (e.g. Ernst and Young, the Guardian). Their website also offers a series of resources for expats, helping them organize expat life well beyond financial needs.

HSBC Expat is a banking corporation devoted to the needs of expats and heavily marketed on the internet and in the daily press. They publish the annual Expat Explorer Survey - a magnet for expats or potential expats.

Why normalize offshore banking?

There is no necessary link between living in another country than one’s home country and having an offshore account. Most people living abroad, ostensibly, manage with two bank accounts: one in the home country and one in the host country. Yet, the solution championed by HSBC is ‘holding your savings and investments offshore’(‘Your money stays in one location.’). This, in turn ‘allows you to manage the repatriation of your wealth tax efficiently on your return to your home country’. By linking offshore discursively to the ‘expat experience’, HSBC normalizes offshore banking and even making it necessary for the expatriates.

HSBC ‘do not provide tax advice and recommend to obtain professional advice from a tax advisor’. This warning limits the bank’s liability but may also make the corporations products more attractive”, the researchers say. In fact, what the warning advertises is full confidentiality and non-disclosure.

On the banks websites, there is no direct explicit connection between offshore, expat banking and tax evasion. Nevertheless, most of the websites are full of references to potential ‘tax efficiency’.

Throughout its material, HSBC Expat trivializes offshore banking.  In doing so, offshore banking becomes intrinsically linked to the ‘expat experience’.  This normalization of offshore, trivializes questions of taxation, rights and duties. By emphasizing that the bank will not disclose anything to the authorities as this is the duty of the customer, a confidential secure offshore account becomes not only within reach of most expats, but becomes a condition of possibility of their exotic dream.

How can domestically confined tax authorities keep pace with this offshore world?