I am hemmed in by rules on all sides. The things I can do with my property are controlled by zoning and environmental restrictions. I can’t take my neighbor’s property or beat him to a pulp without being charged with a crime. I have to pay taxes to support essential public services. My relationship with my family is covered by rules regarding marriage, divorce, and inheritance. There seems to be a rule for everything.

Most of these rules are self-enforcing. I obey them because I understand they are the price for living in civilized society. To the extent I am tempted to violate the rules, there are instruments to keep me in line. Criminal and civil law give the state, and in many cases my neighbors, the opportunity to ensure that I stick to the rules.

There are many in society who share a dream: to beat the system, to exist above the law and the restraints imposed by society. For most being above the law is just a dream, but for a privileged few a world above the law exists. The most attractive selling point for this world is to be free of taxation and regulation. The way to achieve this is by having one’s assets and property owned by entities outside of a given jurisdiction, in a place where the rules have been written to protect the privileged few against the intrusion of the rules of their home countries.

If I am an average employee, whose taxes are withheld from wages, and all outside income is reported to the authorities, I am trapped by the rules. Government authorities have my money, and I have to work to get what is due to me back when I file my taxes. If my income is business income, I have much greater ability to shift the enforcement of tax rules to the government. If I am smart enough and have the resources, I can create enough complexity to protect much of what I earn from being taxed. The tools available to me include the ability to move income and assets outside of the reach of the tax system while keeping control of both.

I can beat the system by making myself into a foreigner doing business in the country and, in that way, take advantage of rules designed to favor foreign investment. 

The select few who have discovered and used this offshore system have been able to take advantage of a rule-free environment to get rich. The financial advantage of not paying taxes and not having to follow the rules regarding disclosure, insider dealing, bribery, and fair dealing is obvious. Even if one is nominally compliant with tax laws but defers the payment of a tax for ten years, it is the same as paying no tax at all.

On a personal level, having assets owned by entities outside of my home country—entities that I control—puts me beyond the reach of civil law. Divorce and child support orders are difficult to obtain and enforce because there is no way to get the necessary information. Civil damage suits lead to judgements that cannot be collected because assets cannot be found and tracing them is too difficult and too expensive.

In our society power and wealth beget more power and wealth. Once the offshore system became established, its beneficiaries lobbied to make sure the rules protected them. This made the public defense of the system much easier. The common refrain is, “We haven’t done anything illegal.” And, “We pay all the taxes we owe.” Technically correct, yes—but also morally indefensible.