Offshore Trusts Have a Mixed Reputation. What's True and What Isn't

Most of what people believe about offshore trusts comes from three data leaks, a handful of contempt rulings, and about four films. A meaningful amount of it is accurate, and it is worth saying so before saying anything else.

This page explains where that reputation came from, what the court record actually shows, which of the common claims hold up and which do not, and where the industry has earned the suspicion itself.

The leaks that built the reputation

Three data leaks did more to shape public perception of "offshore" than anything else in the past decade.

The Panama Papers (2016). An anonymous source gave the German newspaper Süddeutsche Zeitung roughly 11.5 million internal files from Mossack Fonseca, a Panama law firm that had spent decades forming shell companies and offshore structures for clients in more than 200 countries. Shared with the International Consortium of Investigative Journalists and partner outlets, the files showed how the firm's services were used for tax evasion and money laundering. Iceland's prime minister resigned, Pakistan's prime minister was removed from office, and the UK's David Cameron faced sustained questions about his late father's offshore fund. Mossack Fonseca closed in 2018, saying the reputational and financial damage had made it impossible to continue.

The Paradise Papers (2017). A second leak of 13.4 million files, most from the offshore firm Appleby, showed how multinationals and wealthy individuals used offshore structures to reduce tax bills lawfully, alongside some conduct that was not. Queen Elizabeth II's private estate, members of Donald Trump's cabinet and dozens of Fortune 500 companies appeared in the documents. Appleby's position was that it does not tolerate illegal behavior and that most of what the files showed was lawful, if unflattering.

The Pandora Papers (2021). The largest of the three: nearly 11.9 million records from 14 offshore service providers, linking more than 330 politicians and public officials, including 35 current or former heads of state, to offshore holdings. The ICIJ noted that setting up an offshore company is not illegal on its own and that some of what the files showed was legitimate. What stuck was the scale, and the fact that people who write tax law were themselves using the offshore system.

These three leaks are probably why "offshore" reads as a dirty word. It is worth being straightforward about that. A meaningful amount of what they exposed genuinely was tax evasion, money laundering, and concealment from courts and creditors.

Hollywood's offshore villain

Say "offshore trust" at a dinner party and watch what happens to people's faces. Somewhere between a wink and a wince, most people picture a Swiss bank account, a man in a linen suit on a Cayman beach, or a Netflix film about a law firm that got hacked. Popular culture picked up where the leaks left off, and a few depictions did most of the work.

The Wolf of Wall Street (2013). The Geneva banker Jean-Jacques Saurel helps Jordan Belfort move cash out of the country and open a secret account in his mother-in-law's name. The character is loosely based on Jean-Jacques Handali, a real Geneva private banker arrested in Florida in 1994 on money-laundering charges tied to narcotics proceeds, in a matter where Switzerland froze roughly $15 million in a linked account. Handali later told a Swiss outlet that the film reflected the story Belfort wanted to tell. The character is a caricature; the underlying conduct, a banker helping a client launder proceeds, is a real crime that really happened.

The Firm (1993). A young lawyer discovers his firm's real business is laundering money through Cayman Islands shell companies. The film was unflattering enough that Cayman officials sought a closing disclaimer denying the islands were a money-laundering haven. It is fiction, but it planted an image that many people still carry.

The Laundromat (2019). Steven Soderbergh's film, based on Jake Bernstein's book about the Panama Papers, dramatizes the actual leak and the actual firm, including the cost to ordinary people whose insurance claims turned out to sit behind paper shells.

Entertainment compresses complicated legal reality into a two-hour arc, and it generally skips the part where the wrongdoing is discovered and prosecuted, which, as the cases below show, happens often.

When it goes wrong: reporting failures and the IRS

Away from the films there is a well-documented category of offshore trouble that has nothing to do with masterminds and everything to do with paperwork.

FBAR penalties. U.S. persons whose foreign financial accounts exceed $10,000 in aggregate at any point in the year must file a Report of Foreign Bank and Financial Accounts. Miss it and penalties escalate quickly, reaching the greater of $100,000 or 50% of the account balance for willful violations.

Non-willful failures were once assessed by some courts per account, which is how Alexandru Bittner faced a $2.72 million penalty for failing to properly report more than 50 foreign accounts over five years, calculated by multiplying $10,000 across 272 unreported accounts. In 2023 the Supreme Court held 5-4 that the non-willful penalty applies per report rather than per account, cutting his exposure to $50,000. It is a genuine taxpayer win, and it also shows how a reporting failure with no fraud behind it could become seven-figure exposure under the older reading.

FATCA. The Foreign Account Tax Compliance Act requires foreign banks to report American accountholders to the IRS or face penalties. In practice it has also caught "accidental Americans," people who hold U.S. citizenship through birth or parentage but have never lived or worked in the United States. Facing compliance costs and penalty risk, many foreign banks simply decline to open, or choose to close, accounts belonging to U.S. citizens. Some accidental Americans have renounced citizenship to keep a checking account. None of that is a film plot. It is ordinary people caught by a compliance system built for someone else.

The real Swiss secrecy scandal. For a real version of the Wolf of Wall Street's banker, look at Bradley Birkenfeld. A former UBS private banker, he went to U.S. authorities in 2007 with insider knowledge of how the bank was helping wealthy Americans hide assets. His disclosures led to a $780 million settlement, UBS handing over the names of roughly 4,500 U.S. clients, and the effective end of Swiss numbered-account secrecy. Birkenfeld served about two and a half years himself, prosecutors saying he had not disclosed his own full role, and was later awarded a then-record $104 million as an IRS whistleblower. This is the case that ended the fantasy of the impenetrable Swiss vault.

Have people gone to jail over offshore trusts?

Yes, and not for the reason the warnings imply. Courts have jailed people for civil contempt in cases involving offshore trusts. In each of those decisions the person had kept the power to comply and refused to use it. That distinction is the whole of this section, and it is the part most often described loosely.

FTC v. Affordable Media (the Anderson case), 1999. Michael and Denyse Anderson ran a Ponzi scheme and moved roughly $6.5 million into a Cook Islands trust. After the FTC obtained an asset freeze, they said they could not comply because the foreign co-trustee had declared an event of duress. The court was not persuaded: the Andersons had structured the trust so that they, as protectors, retained the ability to remove and replace trustees, so the court found they could comply and were choosing not to. We cover it in full in FTC v. Affordable Media.

In re Lawrence. In January 1991, anticipating an adverse arbitration ruling, Stephan Lawrence settled an offshore trust holding an estimated $7 million, roughly two months before a $20.4 million award against him. He kept the sole power to appoint trustees and to adjust beneficiaries. A bankruptcy court ordered him to turn the funds over, he refused on an impossibility argument, and he was jailed for contempt and fined $10,000 a day. The court applied Florida law rather than the trust's chosen Mauritius law. The detail is in In re Lawrence.

SEC v. Solow is often listed alongside those two, and it should not be. After a securities verdict, Solow's assets moved to his wife, who then settled a Cook Islands trust. He was held in contempt for making no reasonable effort to recover what he had transferred to her. No order ever ran against the Cook Islands trustee, and Cook Islands law was never applied, upheld or defeated. What the SEC attacked directly were the transfers, in a separate fraudulent-transfer action against Mrs. Solow. That is a timing and transfer problem, not a jurisdiction one. See SEC v. Solow.

SEC v. Bilzerian is frequently cited in the same breath and deserves the same care: read the decision before treating it as a trust that failed on the merits.

The lesson running through these is control, not geography. Each person retained the ability to reach the money themselves, which is what allowed a court to say, in effect, you can comply and you are refusing. Courts generally require a person to show in detail that compliance is genuinely impossible rather than merely inconvenient, and that burden is high here because judges have seen the argument before.

Separating what holds up from what does not

True. Offshore structures have been used for tax evasion and money laundering by real people, including public officials, and three of the largest journalism leaks in history documented it in detail.

True. Reporting failures under FBAR, FATCA and Form 8938 carry real financial penalties, and account holders with no intention of hiding anything have been caught by the compliance system.

True, with a qualification that matters. U.S. courts have jailed people for civil contempt in cases involving offshore trusts. They were not jailed for having an offshore trust. In every reported decision our attorneys have reviewed, the person had kept the power to comply, typically the power to remove and replace the trustee, and the contempt followed a refusal to use it. We have found no reported decision in which someone was jailed for creating a properly structured, timely funded trust administered by a genuinely independent trustee. The distinction is the whole subject of our review of the offshore trust case law.

True. Swiss banking secrecy as a shield for U.S. taxpayers is functionally gone, after UBS, after FATCA, and after the Common Reporting Standard, which now moves account information between more than 100 countries automatically.

Myth: that an offshore trust is inherently illegal. It is not. The illegality in the leaks and in the contempt cases came from concealment, fraud, or retained control used to avoid a court order, not from a trust existing in a foreign jurisdiction.

Myth: that moving money offshore makes it invisible. Between FATCA, the Common Reporting Standard and the cases above, that idea is decades out of date.

Myth: that every foreign asset protection trust is a legal time bomb. This one is repeated most often by people with a professional interest in repeating it, which brings us to the industry's own credibility problem.

The industry does not always help itself

It is worth being candid about something most articles on this topic skip. Some of the reputation offshore trusts carry comes from inside the asset protection industry, not only from criminals and leaks.

Steven Oshins is a nationally recognized Nevada trusts and estates attorney, inducted into the NAEPC Estate Planning Hall of Fame, best known for an annual chart ranking state domestic asset protection trust statutes. He has also circulated a list of foreign asset protection trust cases presented as failures.

The list is offered as a warning about offshore structures. Readers may want to know that it comes from an attorney who practices in and actively promotes the domestic alternative. Our firm has published a detailed response arguing that the list groups together outcomes that had nothing to do with an offshore trust failing on the merits - several entries involve no trust at all - and we set out that analysis case by case in our review of the list and in our questions about it.

On the marketing side the reputation takes a different kind of hit. A number of companies sell offshore trust and LLC structures directly to consumers without a licensed attorney handling the engagement. We have published our concerns about one such operation through the Offshore Watchdog. The broader point is that not everyone selling a Cook Islands trust online is a licensed attorney bound by bar rules, malpractice coverage and attorney-client privilege, and that gap is part of why the term carries so much baggage.

What we actually do

Everything above is the backdrop we plan against, not a playbook we follow.

We report everything. FBAR, FATCA and Form 8938, and Forms 3520 and 3520-A where they apply, get filed on time every year. A properly built plan is designed to withstand scrutiny in daylight rather than to stay hidden.

We do not let clients retain the control that sank the Andersons and Lawrence. Those contempt findings followed from settlors keeping the power to fire the trustee or change beneficiaries on demand. A trust structured that way is generally not protective in any meaningful sense. Genuine independent trusteeship is usually the difference between a defensible plan and a contempt hearing.

We use offshore planning for what it is for, which is protecting legitimately earned assets against future claims that do not yet exist. Planning done before a claim arises is a normal and long-established part of wealth planning. We decline engagements structured to defeat a known creditor.

We are licensed attorneys. That means attorney-client privilege, malpractice coverage and bar accountability, which are the things a plan needs behind it if it is ever tested.

The honest picture is less exciting than the film version. Properly reported, properly structured, independently trusteed offshore planning is a lawful tool used every day for legitimate purposes, and the cases that go wrong go wrong for reasons that are visible in advance.

Next step

Considering a Cook Islands Trust?

A confidential consultation. One business day response. No obligation, no paperwork until you're ready.

Schedule a consultation (786) 692-6397