Holly Banks Full of Angst (Village of Primm, #1)(83)

Holly nodded. “Offshore shell company, break the law, get caught.”

“Right. So here’s how it works. Back to step one: offshore shell company.” Jack picked up the first coffee coaster. “A shell company is like an empty shell of a company. It rarely performs any actual business functions beyond maintaining an office with an address in a foreign country. So some ‘corporate headquarters’ are no more than a rented room in an old broken-down building with a file cabinet, a desk, and one employee. The headquarters doesn’t have to be fancy or do anything important; it just needs to be on foreign soil because if you’re incorporated on foreign soil, you follow the laws and tax code of that particular country.”

He continued. “Here’s one example why someone from the US would want to set up an offshore shell company. Corporate taxes are high in the United States, so if you’re a megahuge company that makes a ton of money, you’ll pay fewer taxes by incorporating in a country that has a lower corporate tax rate than what you’d pay if you incorporated in the United States.”

“That almost sounds illegal,” said Holly.

“It’s not,” said Jack. “You can incorporate wherever you want, and many companies do because they’re avoiding not just the higher tax rate but the regulations on business. The problem comes when you break the law either through insurance fraud, illegal gambling, money laundering—that sort of thing—and then use the offshore shell company to hide the money from the US government. That’s step two: breaking the law. With Michael St. James, we’re talking insurance fraud.”

“How does that work?” Holly’d had no idea this little village held so many secrets.

“Michael finds things to insure. A yacht, racing horses—risky endeavors with big insurance payouts if they fail, like a recent series of Wallops Island rocket launches that went bad. Because offshore companies own the insured assets, the money from the insurance payout never circulates in the United States. Everything’s done offshore, where laws and finances are more favorable.”

“So the legal offshore shell company gets used for illegal things,” said Holly.

“Precisely.” Jack held up the first coffee coaster. “Offshore shell company.” He picked up the second coffee coaster. “Break the law. In Michael St. James’s case, his offshore shell company insures something, and when that something gets killed (racing horses), or wrecked (yachts), or fails (Wallops Island rocket launch), the insurance money is paid to the offshore shell company because the offshore shell company is named as the beneficiary on the insurance policy. Now, typically, money made from an insurance settlement isn’t taxed under US law, unless it exceeds the original cost of the asset. In those cases, if you want to avoid paying US taxes on the financial gain, it’s best to insure them using an offshore shell company.”

So if Michael St. James insured Plume, and Plume is worth more today than she was when she was first planted . . . Holly was still piecing things together. “So what you’re implying is that the US government is going to get pretty angry when it realizes it missed out on collecting taxes from an insurance settlement because the entire transaction went through an offshore shell company.”

“Exactly,” said Jack. “Michael is not just committing insurance fraud; he’s also evading taxes. Not something you want the US Treasury to find out about. But the thing is, they can’t nail him for it unless they prove he broke the law on US soil.”

“Prove he committed insurance fraud.”

“Correct. Federal Treasury agents and the FBI want to shut the entire operation down. Offshore shell companies aren’t illegal, but the insurance fraud is happening on US soil. That’s what they’ll go after,” said Jack, picking up the third coaster. “Michael St. James is about to get caught.”

“But you didn’t know about any of this until recently, right?” asked Holly. Please say yes, Jack. Please explain to me how you’re not involved in any of this.

“We’re in trouble for the byzantine structure we created for them over a series of years—decades, actually. Offshore corporate structures so complex it’s nearly impossible to navigate. In our firm, Michael’s account alone includes seventeen trusts, countless annuities, and twenty-four subsidiary companies. Only recently did we come to fully understand the scope of the insurance fraud and tax evasion, and the minute we were tipped off, we agreed to cooperate with law enforcement officials. Everything we did was legal, Holly. Opening a business in the British Virgin Islands is perfectly legal, and until corporate law and the tax code change in America—and most parts of the developed world for that matter—there will always be compelling reasons to incorporate offshore. You’d be amazed by the size of the economy that’s floating on islands.”

Jack looked Holly straight in the eyes. Like he needed her to trust him. And she did. Jack was a good man. But good gravy, this was a lot to swallow.

“We’re one of nineteen different law and accounting firms they’ve used over the years. These guys are brilliant. The best of the best. One hand doesn’t know what the other is doing. That’s the idea. That’s why we’re all involved. The IRS considers the complexity of the system—the structure we created—to be a willful attempt to evade taxes and creditors.”