In short, you place your money with a bank located in a foreign country. They state the money is theirs, and you claim the money is not yours. The money compounds tax-free, your creditors can’t find the account, and all seems to be well... in theory.
(1) Whomever you’ve given your money vanishes, or refuses to acknowledge it's yours, and you are left withour recourse since reporting this to the authorities amounts to admitting you have committed tax evasion.
(2) The individual you conspired with not only steals your money, but proceeds to blackmail you, which you feel compelled to pay so that they don’t reveal that you have committed tax evasion.
This happens ALL THE TIME. Uninformed people depart their cruise liner near some offshore center, saunter to the nearest bank and declares "I need a trust with a secret bank account" and proceeds to "deposit" their hard earned cash. Approximately once a month, publications run a story about offshore service providers disappearing with client's money. And those are only the stories you hear about. This is one reason to lean towards Wyoming aasset protection trust , rather than overseas trusts.
There's no statistical breakdown of how frequently money disappears through this process, but the secretive nature of these transactions prevents anyone from reporting. Estimates suggest such losses exceed US$100 million annually, and are perhaps far greater.
It is surprisingly easy to be tricked by offshore service providers. The well-known offshore banks, do after all, encourage secret accounts. This is due to the prevalence of the "Hide the Money" mentality in these jurisdictions. They will point at the laws of their country, which are formed specifically for this purpose, and state it's impossible the I.R.S. will ever find out about your doings. The catch though is that for this to work you may not declare the account or any interest earned. This means, by definition, you are committing tax evasion. This crime, at minimum, 150% of the value of the hidden account. So the worst case scenarios are either losing everything to an unscruplous offshore provider, or losing 50% more than you originally put in because you are found out. Further, the government of your banks' country will in most cases protect the offshore service provider over assisting you. Consider that it is bad business to admit their offshore service providers engage in embezzlement. So, you have no recourse and may face blackmail if you don’t cooperate.
The solution is very simple: DON'T DO IT. Don't trust your money to anybody but yourself, a well-regulated bank or a trust company. Also, don't try to evade the IRS. Life is too short for the hassle and worry. Organize your affairs in a manner allowing you to disclaim the funds when creditors inquire, but always report it to the IRS and pay your taxes.
This simple failure is after all how the top mob bosses were brought down, on tax evasion, not murder! There are various ways to legally declare it to the IRS while simultatenously innoculating assets from creditors; such as, forming offshore limited partnerships and placing them in respected and regulated offshore trust companies or banks.
Food for thought: If you hide money, what generally follows is that your money will then be hidden from you. Instead, "hide your money" in plain sight. Place your assets into domestic asset trusts that are controlled by you and are not subject to any of the fines or penalties of offshore trusts. No, you won't be able to avoid taxes, but you can stop creditors or at least create an element of doubt as to their ability to collect, thusly strengthening your hand. All of this, and then some, especially applies to non-traditional offshore trusts.