06 March 2026
Offshore bank accounts: the line between the law and the shadow economy
This article was originally published by Cat Woods for LSJ Online (6 March 2026).
The ownership of offshore bank accounts is lawful, but there are circumstances in which their misuse results in a serious crime. It is often not until major crimes are committed and exposed in media headlines that offshore bank accounts are called into question. At present, the late American financier and convicted criminal Jeffrey Epstein's use of offshore bank accounts to maximise income and evade domestic taxes for his network of clients has drawn international attention.
Australians are taxed on their income, regardless of whether that income is from an Australian or an international source. Earnings from offshore accounts in the form of interest, dividends, or capital gains must be declared in tax returns.
According to the ATO, offshore tax evasion is – like other forms of financial crime – diverse in nature and scale, “often structured in ways that combine legal and illegal transactions”.
To ensure that offshore bank accounts are held and managed lawfully, the ATO’s Serious Financial Crime Taskforce (SFCT), together with international governments and authorities, act in accordance with international treaties, exchange agreements, and reports from third parties (ie. tax professionals, lawyers and financial advisors) and whistleblowers. Where required, the ATO relies upon the formal access granted to the Commissioner of Taxation, Rob Heferen since March 2024, to obtain information about the account owner via their tax agent, lawyer, or advisor.
Lisa To, Partner at Bartier Perry and a taxation expert, says, “Australians with dual citizenship, secondary tax residencies, or those classified as High‑Wealth Individuals often make use of offshore bank accounts to support their increasing global mobility. Offshore arrangements can provide practical advantages such as making it easier to manage assets across multiple jurisdictions, reducing administrative complexity, and providing flexibility when relocating or working abroad. When structured correctly, offshore accounts and related structures can also deliver tax efficiencies and asset protection benefits.”
She points to the essential role of international cooperation in ensuring that offshore accounts remain above board legally.
“Offshore accounts are subject to the highest scrutiny in countries that participate in the OECD’s Common Reporting Standard (CRS), as these jurisdictions automatically share financial account information with one another. Australia, through the ATO, exchanges data only with jurisdictions that have implemented the CRS or have otherwise committed to participation. Where a country is not a CRS participant, the ATO does not have the authority under the CRS framework to obtain financial account information from that jurisdiction.”
For individuals seeking to open an offshore account, To has this advice.“Australians can open offshore accounts legally if they follow transparency and global reporting requirements, including international information‑sharing frameworks such as the CRS. To ensure the process remains lawful and secure, clients should provide full KYC/AML documentation and work only with reputable, well‑regulated foreign banks that uphold strict due‑diligence standards. Keeping clear records and seeking professional financial or legal advice helps Australians stay compliant with tax, reporting and other regulatory obligations associated with offshore accounts.”
When offshore accounts create problems
To says, “Tax fraud or evasion in Australia carries serious legal and financial consequences. Individuals and businesses may face substantial interest, penalties (calculated as a percentage of the tax shortfall) and in more serious cases, criminal prosecution.”
She points to Bywater Investments Ltd v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45 as a prime example.
“That case underscores the need for taxpayers to take particular care when implementing offshore structures, illustrating that superficial or contrived arrangements will attract significant scrutiny from the ATO,” says To.
“A key issue before the High Court was whether several companies incorporated offshore – including in Hong Kong and Samoa – were Australian tax residents. Broadly, the High Court found that notwithstanding that the formal boards of the companies were overseas, the offshore directors merely ‘rubber-stamped’ decisions. The companies were controlled by an Australian resident and were therefore Australian tax residents.”
She explains further, “Although the High Court was not required to consider fraud or evasion, Chris Jordan (the Commissioner of Taxation at that time) stated that the High Court’s decision ‘affirms that [the ATO] will maintain [its] resolve to pursue cases of blatant tax evasion’ and that ‘any parties who set up complex structures offshore with the clear intent to avoid paying tax in Australia, should take a hard look at what they are doing and whether they want to run the risk of being caught and seriously penalised’.”
The Panama Papers scandal
On 3 April 2016, 11.5 million whistleblower-leaked documents created by, and taken from, the Panamanian offshore law firm Mossack Fonseca, were published. These documents revealed the financial and attorney-client information for over 214,488 offshore entities. The so-called Panama Papers provided details that in some instances, traced back nearly 50 years. A number of individuals – primarily high-net worth people and public officials – were prosecuted, revealing not only their financial crimes, but links to Russian intelligence, fraud, and evasion of international sanctions.
Of the hundreds of public officials, politicians, celebrities and businesspeople named, there were over 200 countries represented in the documents. Swiss lawyer Dieter Neupert was accused of aiding both oligarchs and the Qatari royal family to hide money and assets. The former prime minister of Iceland, Sigmundur Davíð Gunnlaugsson and his wife, possessed a secret offshore account in a shell company called Wintris Inc., leading to his resignation in 2016.
Australians, too, came under scrutiny by the ATO as a result of the leak. Over 1,700 individuals and 200 intermediaries had set up offshore companies via Monsack Fonseca, of which the ATO investigated around 800 high-wealth taxpayers. The investigations led to identified links to individuals named in the Australian Crime Commission database, tax penalties, and criminal investigation into organised crime.
Lisa To says, “The primary impact in Australia was increased, scrutiny, enforcement activity and intelligence sharing, as opposed to the enactment of new laws. The ATO launched extensive investigations and compliance actions, targeted over 1,000 taxpayers connected to the leak, froze assets and pursued substantial tax liabilities for cases connected with the leak. The Serious Financial Crime Taskforce (comprising the ATO, the AFP and AUSTRAC) executed search warrants resulting in prosecutions and significant tax liabilities raised.”
Still, legislation tightened. On 29 November 2024, the federal government passed one of the strictest tax disclosure laws for multinational companies in the world, ensuring that the once-voluntary reporting of such data was now mandatory, and comprehensive. The Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024 (Cth), authorised under the Taxation Administration Act 1953 (Cth) requires multinationals to report tax data from the financial year of July 2024 onwards. The law applies to approximately 40 jurisdictions, including low-tax countries Panama and the Cayman Islands. In December 2024, Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability and Research, told the ABC that he believes Australia is now leading the world in increasing tax transparency for multinationals.
The new tax transparency data is expected to be available to the public later this year. All multinationals where $10 million or more of their aggregated turnover for the reporting period was Australian-sourced are required to thoroughly report, in detail, their worldwide income sources. This data will be provided to the ATO, which will upload it for the public to read on data.gov.au.
To says, “The ATO requires taxpayers to disclose whether they have foreign assets or property valued at more than AUD $50,000 during an income year. This is a mere disclosure requirement. As Australian tax residents are subject to tax in Australia on their worldwide income, they must declare any foreign income (including interest, dividends, capital gains, and other income from foreign assets). This is the case even if they have foreign assets or property valued at less than AUD $50,000.”
According to the ATO website: “Offshore tax evasion is a global problem that we are addressing through global solutions. It’s clear that our efforts to tackle offshore tax evasion are paying off and that our strong partnerships will enable us to uncover even the most elaborate offshore tax evasion schemes.
In recent years over 2,500 exchanges of information have occurred which have enabled us to raise tax liabilities of $1 billion.”
Epstein’s long relationship with tax havens and billionaires
To says, “Recent revelations about Jeffrey Epstein’s financial dealings have renewed focus on the use of offshore bank accounts and the challenges regulators face in tracing beneficial ownership. In the United States, financial institutions are subject to detailed federal rules which require identifying and verifying the beneficial owners of legal entity customers.”
In 2017, the “Paradise Papers” were published, a leak of 13.4 million confidential files exposing the offshore financial dealings, tax avoidance, and hidden wealth of an elite international coterie.
Epstein chaired a Bermuda-based company called Liquid Funding Ltd. from 2000 to 2007, which was partially owned by Bear Stearns. Documents exposed by the “Paradise Papers” leak revealed at least some of how Liquid Funding Ltd. was operating in tax havens.
Epstein was also being legitimised through engagement with major banks. Despite internal red flags, JP Morgan Chase and Deutsche Bank handled Epstein’s accounts, enabling large cash withdrawals and wire transfers to individuals in Eastern European countries and Russia. The banks were later sued and settled claims that their actions facilitated his sex trafficking enterprise.
In 2023, JP Morgan Chase reached settlements with the US Virgin Islands and former bank executive Jes Staley over its alleged facilitation of convicted sex offender Jeffrey Epstein’s trafficking ring. The bank agreed to pay $USD75 million to the territory and an undisclosed amount to Staley.
As revealed in an extensive investigation by the New York Times, “The U.S. Virgin Islands was an unusually welcoming place for Epstein to do business. The territory’s law enforcement and financial regulations were notoriously lax, its politicians acquiescent. And the islands had created a series of generous tax incentives to lure businesses from the mainland.
“Epstein applied for one of those breaks, which would enable his main company, Financial Trust, to avoid most taxes — a potential savings of tens of millions of dollars a year.”
To says, “In both jurisdictions [Australia and the US], identifying true account ownership becomes significantly harder when third parties, layered entities, or complex trust structures are used to open or manage accounts, as these methods can obscure who ultimately controls the funds. Both Australia and the US explicitly recognise this risk and frame their AML/CTF rules around closing these visibility gaps.”