Banking experts have one word for individuals considering tax evasion as a means of protecting their wealth - don't. 'Tax planning based on no one finding out isn't working and the chances of no one finding out are diminishing rapidly,' says Bernard Rennell, head of private client services Asia-Pacific at the Bank of Bermuda. There may be a fine line between legal tax avoidance and illegal tax evasion but, as a former British chancellor once put it, 'the difference between tax avoidance and tax evasion is the thickness of a prison wall'. Events in recent years have led to governments around the world calling for a clampdown on lax banking regulations as criminals and terrorists exploit loopholes and confidentiality agreements to launder their ill-gotten gains. Even tight-lipped jurisdictions such as the Channel Islands and Switzerland have been helping in the fight against tax evasion. Under the European Union's savings tax directive, 12 member states exchange information about bank accounts held abroad by each others' citizens. Financial centres that operate strict banking secrecy laws can instead opt to impose a special tax on bank accounts held by EU residents. The United States Internal Revenue Service (IRS) recently obtained a court order requiring disclosure of the names and transaction records of everyone issued a credit card from various offshore jurisdictions. 'The modus operandi is that a couple of federal agents turn up with badges and guns, accuse you of tax fraud and money laundering, and then you go to prison,' says Mr Rennell. Driving the push against tax evasion in the US was last year's estimate by former IRS commissioner Charles Rossotti that in a given year, it assesses almost US$30 billion of taxes that it will never collect. Mr Rossotti admitted that while some evaders were simply unable to pay, more than half of noncompliant taxpayers with incomes above US$100,000 avoid penalty. Mr Rennell says minimising the amount of tax or pay is legitimate but outright tax evasion is not. He believes it is only a matter of time before a high-profile individual in the Asia-Pacific is caught and the resulting publicity used as a warning. 'In most jurisdictions, tax authorities are getting increasingly aggressive,' he says. 'They raid people's homes and offices, their lawyers, accountants and private bankers. It's only a matter of time before some family in Hong Kong is made a big example of.' Mr Rennell says so many legitimate planning opportunities exist now that it does not make much sense to take the risk on illegitimate opportunities. It is just a matter of getting it right. 'There have been so many developments over the past few years that people are increasingly having to get their structure right, because a structure can be as confidential as you like but if it comes under the regulatory spotlight, it has got to stand up to scrutiny,' he says. Mr Rennell says that, unlike corporations, private families can be exposed to several jurisdictions of estate tax. As a result, taxes can quickly deplete family wealth if planning is not done properly. 'If medium to long-term capital preservation is your objective, investment strategy is very much secondary,' he says. 'It's important but secondary. What's the point of worrying if the return on your assets last year was only 5 per cent if a substantial amount of that wealth is going to be wiped out by tax?' Mr Rennell advises building a private trust in which all beneficiaries play a role. Managed properly by a private banker, tax payments can be significantly reduced - and all within the letter of the law.