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The most inventive havens allow investors to set up shell corporations with invisible owners, which means that high rollers can secretly stash their money in real estate, corporate stock and other assets. The Netherlands Antilles, with cash flowing steadily from banking centers in Amsterdam and Rotterdam, is a favorite financial center for investors seeking a low profile. Many Hollywood filmmakers love the arrangement, since movie profits can be diverted to a nearly tax-free setting. Many actors, producers and directors set up so- called personal-service companies in the Antilles so they can collect their paychecks through such corporations and avoid U.S. taxes. "It has to be structured very carefully, since the rules are tortuously complicated, but it is legal," says a top entertainment lawyer. However, the IRS may take a closer look after your story comes out."
Just as Hollywood paychecks pour into these havens to avoid taxes, mystery money flows out in search of well-paying investments. "The man I'm working with now," says a prominent screenwriter, "is an American representing vaguely described movie and cable interests in Europe who seem to have a waterfall of money from banks in Luxembourg and Amsterdam. He's all over town offering unlimited financing, but he won't show up himself at any of the meetings with the networks or studios."
Dozens of islands, from Britain's chilly Isle of Man to Vanuatu in the South Pacific, have boosted their economies by turning into havens for money. While narcotics traffickers launder their dollars through so-called brass-plate companies on these islands, the main business of the tax-free offshore havens is servicing some of the world's largest multinational corporations. "The idea is to put profits where there are the least taxes. Everybody does it," explains the president of a major U.S. corporation's foreign subsidiary.
One technique for minimizing taxes is a quasi-legal fabrication called reinvoicing, a paper shuffle that enables companies to rebook sales and profits into tax havens. For example, one FORTUNE 500 corporation imports raw materials through an offshore dummy company, which buys shipments at the lowest possible price and resells the material to the parent firm at a high markup. This dumps profits in the tax haven, while the U.S.-based company can boost its apparent costs to reduce taxes on the mainland. The profits can then be repatriated in the form of tax-free "loans" from offshore entities to the U.S. parent corporation.
While the IRS tolerates such schemes up to a point, the U.S. Government has tried to choke the river of drug money flowing through the same channels. Yet laundering hot spots tend to be moving targets. After the U.S. negotiated new treaties with Bermuda and Cayman authorities to allow limited access to banking records in narcotics cases, many of the launderers found new havens.