Prologue:
C'Punks:
While direct crypto relevance is limited, I thought that this work
might interest many on the list and so I decided to post it in any
event. The sections on fourth and fifth amendment protections, or
lack thereof, for banking documents might shed some light on the
eventual disposition of crypto keys under the same circumstances.
This text represents a sanitized and >heavily< modified version of
scholarly work I recently published. I should also mention that
portions of the original work have been subjected to official review
prior to publication. For the purposes of posting to the list, and to
conceal my identity, I changed the note to approach things from the
perspective of the asset concealer. Although this wouldn't have gone
over well when submitted for a scholarly publication, it better
represents the way I think about these issues. Given the nature of
the "legitimate" scholarly work that predates it and its subject
matter, this note seemed the logical extension, and I found myself a
bit carried away with it before I was done. In this regard the below
is a more honest and complete picture of asset protection than the
scholarly work, or probably than any other publication floating about
right now.
And it's just for you cypherpunks, for the moment.
Unfortunately, after completing the work I began to realize that many
sections were inappropriate for general release. As a result several
source cites that survived review have been removed, but I have tried,
where able, to keep the majority of the substantive material present.
When I felt the need to remove substantive portions it was either to
prevent exposing what I believe to be novel methods, because I
consider the sections work product which I would like to continue
utilizing effectively, or to protect those methods I know to be
utilized by my associates. To prevent misunderstandings, where large
portions (more than a few lines) or crucial elements have been
removed, I have so indicated with empty brackets. ("[]" and "[...]").
I've segmented the note. I'll consider posting the second, third and
forth volumes if there's enough interest. As they involve some of the
more sensitive issues, I'm not sure yet if I'm willing to release them
generally, with more deletions, or at all.
If it gets to you garbled, mail me, I'll send you another copy.
As always, this is an educational/academic work. The law is ever-
changing and attempting to conduct international financial
transactions without exacting professional advice is ill advised and
extremely dangerous. I'm not being paid for services, so the reader
uses this material at his or her own peril.
I reserve all rights to this work. Please do not re-distribute it
without permission. I intend to allow its semi-free circulation
generally, but I must ask that forwarders request permission before
reproducing it so that I may have an idea of where it is going. This
is mostly for my personal edification. >Please do not< make it
available via WWW, FTP, or other unrestricted distribution. If you
insist on ignoring my wishes, may a thousand biting flies infest your
pubic hair, but at least leave my e-mail address on it.
**********
[...]
Practical and Legal Problems Confronting the Asset Concealer in
Relation to Offshore Financial and Corporate Entities: A View from
the Perspective of the Individual Attempting to Avoid Extraterritorial
Discovery, Attachment, or Coercion.
[] (unicorn(a)schloss.li)*
* LL.M.,[]; M.A.,[]; J.D.,[]; B.A.,[];. [] is an attorney licensed to
practice in The District of Columbia, Switzerland, [], and also a
former member of the intelligence community.
'''''
I. Introduction
II. Use of the Offshore Haven
[]
What to Look for in an Offshore Haven
[]
III. Legal Considerations for the Asset Concealer
U.S. Discovery
Compelled Consent Orders
Local Illegality
Foreign Offshore Jurisdictions Respond
Discovery Blocking
Judgment Blocking
Are High Profile Offshore Centers to be Avoided?
[]
The Goals of the Asset Concealer and Selection of Jurisdiction
Tax Cases
Securities Issues
[]
The Constitution is of No Help.
The Fourth Amendment
The Fifth Amendment
IV. Esoteric Considerations
Intelligence Threats
The Anatomy of a Money Laundering Investigation
[]
Private Banks
Using Private Banks to your Advantage
[]
Bearer Shares
V. Reviews of Specific Jurisdictions
Why I Don't Like Switzerland Anymore
The SBA
Mutual Legal Assistance Treaties
Why I Like Panama
Why I Like Liechtenstein
The Anstalt/The Treuunternehmen
The Stifung/The Aktiengesellschaft
Secrecy
Why I Like (sort of) The Cayman Islands
Private Banks
[]
Why I Like Vanuatu
Bearer Shares
[]
Private Banks (Easy?)
[]
Why I Like Turks and Caicos
Redomiciling
Private Banks (The Easiest?)
[]
Why I Like Bermuda
Why I Like (in a pinch) The Bahamas
The Bahamas Corporation
Private Banks
The Local Authorities
Why I Like Nauru
Holding Corporations
Private Banks
Why I Like (sort of) The Virgin Islands
Security Through Obscurity
The Thatcher Appeal to Reagan
Why I Like (in a pinch) Aruba
Why Moving Money is Easy in Latvia
Why Moving Money is Easier in Thailand
Why Moving Money is Easiest in Estonia
Arms Dealing and the Velocity of Money
[]
Liquidity and Ease of Exchange
The Local Authorities
Why I Send Casual Arms Dealers to Liberia
[]
Why I Send those with $10m+ to Seychelles
Diplomatic Immunity
[]
Investment Incentives
Reliability
Why I Send Those with $15m+ to Monaco
Conversion to Bearer Shares
Shipping Investments
Why I Send Dirty Money to Rumania
Why I Send the Filthiest Clients to Bulgaria
Fraud in the Bright of Day.
The Local Authorities: A Case Study
[]
Why I Send Narcotics Money to Turkey
Why I See Promise in Gibraltar
VI. Conclusions
Constructing Asset Concealing Organizations: Step by Step
Forming the Holding Entity
Forming the Direct Asset Holders
[]
Bearer Shares: Double Blinds
Forming and Using Your Personal Financial Institution
Moving the Money: Avoiding Currency Reporting
[]
The Re-investment Vehicle
Warning Signs
Pressing the Panic Button
The Tools of the Trade and How to Use Them
A Case Study I
A Case Study II
[]
A Case Study IV
The Future of International Asset Protection
The Key to Success in Any Jurisdiction
Secrecy or Expatriation?
Final Thoughts
VII. Appendix
Detailed Analysis: Personal Financial Institution Formation in:
The Cayman Islands
Panama
Luxembourg
Jersey
Bahrain
[]
Vanuatu
The Bahamas
[]
[]
Contacts:
Professionals I Recommend to Asset Concealers
[]
Financial and Trust Institutions of Note
[]
'''''
I. Introduction
While there has been much writing on "tax shelters," money laundering,
and the use of the international business corporation to "judgment
proof" assets, I've seen little discussion of the practical
considerations in shielding assets effectively, especially for the
United States resident. With all the seminars, and "insider's guides"
to the various jurisdictions and their incentives, there exists a
significant amount of disinformation floating about. I thought I
would take the time to dispel some of the rumors and myths about asset
protection and try to give a practical view that is sorely lacking in
any of the common or scholarly literature on the subject. The
following work will examine these issues in more detail. Part II will
examine very briefly the uses of the offshore "tax haven." Part III
will consider some of the legal aspects confronting the asset
concealer. Part IV will examine some of the more esoteric issues and
attacks on the asset concealer. Part V will take a closer look at some
jurisdictions. Part VI will draw some conclusions, provide a step by
step guide for constructing asset concealing organizations and make
some predictions for the future.
II. Use of the Offshore Haven
Most people assume that the amount of the underground economy is
fairly small and that offshore banking is entirely too complicated for
the everyday person to deal with. This is patently false.
Even as early as 1979 estimates of illegal money flowing through the
Caribbean tax havens alone was in excess of fifty billion dollars a
year. The Use of Offshore Tax Havens for the Purpose of Evading
Income Taxes: Hearings Before the Subcommittee on Oversight of the
House Committee on Ways and Means, 96th Cong., 1st Sess. 1 (1979).
One estimate at the time attributed $25 billion a year to the Bahamas
alone. Illegal Narcotics Profits: Hearings Before the Permanent
Subcommittee on Investigations of the Senate Committee on Governmental
Affairs, 96th Cong., 1st Sess. 474 (1979) (Exhibit No. 33, Offshore
Banking: Issues With Respect to Criminal Use, Submitted to the Ford
Foundation, Nov. 1979, by Richard Blum and John Kaplan). In 1978, the
Bahamas held $95.2 billion in foreign assets, a mere $1.8 billion of
which was used to finance foreign trade. Douglas J. Workman, The Use
of Offshore Tax Havens for the Purpose of Criminally Evading Income
Taxes. Today the Cayman Islands have a population of 30,000, over 500
banks and some $415 billion of assets on deposit.
All one must do to take advantage of an offshore tax haven is get the
money offshore and design a vehicle to use it where you live. The
techniques used to accomplish these goals are as varied as the
creativity of the asset concealer. Even so, and while any treatment
of this subject must almost by definition be incomplete, some of the
more apparent aspects and methods are touched on below:
A) Moving money offshore:
Obviously, a cash producing business could easily stream funds
overseas without much auditing liability. Follow this simple
procedure:
1. Put cash in pocket.
2. Get on plane to offshore jurisdiction.
3. Deposit cash.
4. Return.
Or in the case of non-cash businesses:
American Business ("Biz") is owned by U.S. Citizens 1-3. Business
"expenses" for Biz are paid to a foreign corporation ("For1"), and
deducted from Biz's corporate taxes. While an audit might disclose
these payments to the foreign corporation, it is fairly easy to shield
them within the cost of goods sold. If pressed, it is easy for Biz to
claim that For1 and Biz are unrelated, and produce canceled checks
and/or receipts to effect such proof. For1 retains 10% of the
payments from Biz, and passes the remainder to another foreign
corporation ("For2"). An auditor will now have no direct access to
records of the payments from For1 to For2, and indeed, the records may
not even be in the country.
Biz could also claim to be paying for services rendered under contract
by For1, where in actuality said services are being performed by Biz
and claimed by Biz as business expense deductions.
[...]
B) Bringing the money back.
Assume For2 is owned by a foreign offshore trust ("Trust") the
beneficiaries of which are citizens 1-3. Any investigation would be
tasked to reveal the existence of this relationship or the flow of
funds back to the citizens. While for technical purposes these funds
are held offshore, their presence in a U.S. bank in the name of Trust
is certainly possible.
Wiser still, For2 could direct Trust to make a third foreign
corporation ("For3") the 100% beneficiary, invest in U.S. securities
through For3 (the capital gains of which are not technically taxable
to foreign entities not connected to the United States). Repatriating
the assets is a simple matter accomplished either by situating For3 in
a jurisdiction with a treaty waiving the withholding tax on dividends
and interest (in past this has been the Netherland Antilles) or by
drawing directly on the foreign accounts of For3 in such a way so as
not to draw undue attention.
In past if Citizen 2 had some appreciated securities he would have
sold them to Trust in return for an annuity with a carryover basis, or
as an installment sale. Citizen 2 would recognize only the annuity
gain on the transaction because the gain will be realized by the
offshore entity. Obviously, the capital gain can be repatriated in
the same way as above.
Citizen 3 lives and spends a great deal of money in the United States,
but is already the subject of several large judgments in the country.
She instructs Trust to lease a new Ferrari, and obtain a secured Gold
Mastercard in the trust's name from the bank administering Trust.
Citizen 3 can enjoy the fast life, draw massive cash advances as well
as purchase anything she likes without income accountability.
Various complications can be included in any liberation/repatriation
plan.
Tainted funds can be exchanged for large denomination bank notes in
varied currencies, the notes exchanged for bank checks, bearer credit,
or bearer bonds/certificates of deposit, or any liquid monetary
instrument easy to travel with. (Uncut diamonds, precious metals or
securities are all quite popular). The goods are then transferred
into another country and liquidated or stored.
[...]
While many of the legal loopholes have been filled with regard to the
more public transactions, it becomes increasingly clear that asset
concealing is an informational issue. The more difficult one makes it
for investigators to discover assets, trace their movement, or to
attribute any of these things to the depositor, the more effective the
asset concealing endeavor will be. Asset concealing thus becomes a
question of economics. How much can the prosecuting authorities
spend, how much time do they have, and is there any degree of
suspicion to begin with?
What to Look for in an Offshore Haven
[...]
III. Legal Considerations for the Asset Concealer
U.S. Discovery
Compelled Consent Orders
Many people believe that foreign and domestic banks, particularly
those situated in jurisdictions that criminalize such disclosure, will
never release depositor's account information, assets, or related
documents.
This too is patently false. In fact, the United States has gone to
lengths to make it difficult for foreign banks and fiduciaries to
withhold such items from U.S. litigants. Typically, heavy fines are
imposed on banks refusing to comply with court orders compelling
discovery of financial documents, even those located in foreign
jurisdictions and where the disclosure imposes criminal and civil
penalties on the disclosing bank. Fines of $2 million are not without
precedent. (Unites States v. Bank of Nova Scotia, 740 F.2d 817, 832
(11th Cir. 1984), cert. denied, 469 U.S. 1106 (1985)(upholding
$25,000/day fine totaling $1,750,000 for failing produce documents
located in the Cayman Islands under grand jury subpoena duces tecum;
Marc Rich & Co., A.G. v. United States, 707 F.2d 663, 670 (2d Cir.),
cert. denied, 463 U.S. 1215 (1983)($50,000/day against Swiss
corporation for noncompliance with subpoena duces tecum demanding
documents located in Switzerland). It should be very apparent that
U.S. courts are not shy about imposing potent sanctions, even upon
third parties, in order to facilitate plaintiffs and prosecutors
access to documents and evidence.
On international discovery, See Generally, Note: Ordering Production
of Documents from Abroad in Violation of Foreign Law, 31 U. Chi. L.
Rev. 791 (1964); Note: Recent Developments in the Law Concerning the
Foreign Illegality Excuse for Non-Production, 14 Va. J. Int'l L. 747
(1974); Note: Foreign Nondisclosure Laws and Domestic Discovery Orders
in Antitrust Litigation, 88 Yale L.J. 612 (1979); Limitations on
Concurrent Jurisdiction -- U.S. Court May Order Discovery of Foreign
Documents, Notwithstanding Foreign Law, If Discovery Will Support
National Policy, Is Vital to the Litigation, and May Be Accommodated
by the Foreign Sovereign, 20 Va. J. Int'l L. 925 (1980); Rosdeitcher,
Foreign Blocking Statutes and U.S. Discovery: A Conflict of National
Policies, 16 N.Y.U. J. Int'l L. & Pol. 1061 (1984); Robinson,
Compelling Discovery and Evidence in International Litigation, 18
Int'l Law. 533 (1984).
Local Illegality
This puts many banks in dire straits as local jurisdictions can in
turn impose powerful sanctions for complying with court ordered
discovery in the United States. See e.g., Bank and Trust Company
Regulation Act of 1965, @ 10(3) (amended 1980)(Bahama Islands)(fine up
to $ 15,000, prison term up to two years, or both); Art. 47, Bank G.
(Switzerland)(fine up to $ 50,000 or prison term up to two years, fine
to $ 30,000 for negligence); Montserrat Ordinance, No. 5 Section 5
(1980)(The Confidential Information Ordinance)(fine up to $ 5,000 and
prison term up to two years for "nonprofessional person," fine up to $
10,000 and prison term to four years for "professional person"); The
Bank Secrecy Act, Art. 2 (Greece)(minimum of six months imprisonment
with no possibility of suspended sentence, or imposition of fine).
>From the perspective of the asset concealer it is worth noting that it
is not only banks that can be fined for failure to disclose financial
information. Accountants, clerks, corporations, or literally any
fiduciary, are subject to significant fines and incarceration in the
United States for failing to comply with court ordered discovery.
Many of these "secondary" participants are targeted and, as often they
have shallower pockets, are less able to bear the legal costs of
defending against these powerful fines and, unlike banks, have less to
lose in the way of reputation and client goodwill if they comply and
disclose. Given the lower fines and the infrequency with which
criminal penalties are imposed on professionals so compelled, it is
often to the advantage of the foreign document or evidence holder to
disclose and risk the ire of local authorities rather than the
notoriously vigorous U.S. courts. Some U.S. courts have gone so far
to indicate that banks unwilling to submit to the will of one or the
other sovereign should "cease operation of the foreign branch." See
e.g., First Nat'l City Bank v. IRS, 271 F.2d 616 (2d Cir. 1959);
United States v. First Nat'l City Bank, 396 F.2d 897 (2d Cir. 1968).
At least one court has not only acknowledged this dilemma, but wielded
it as a policy measure, "...the defendant should feel the full measure
of each sovereign's conflicting commands and so choose between laws of
those two sovereigns." Westinghouse Elec. Corp. v. Rio Algom, Ltd.,
480 F. Supp. 1138 (N.D. Ill. 1979).
Generally speaking, there is little guidance for federal district
courts, in which most of the litigation arises, as the only solid
Supreme Court authority is Societe Internationale pour Participations
Industrielles et Commerciales, 357 U.S. 197 (1958). Courts, while a
bit shifting in their doctrine, have tended to apply a few common
considerations. Factors indicating the United States interests at
stake and the foreign entity's good faith attempts to comply with the
court's order will both, almost without exception, be considered in
reviewing the need for sanctions against foreign entities. See
Generally, Mark Brodeur, Note: Court Ordered Violations of Foreign
Bank Secrecy and Blocking Laws: Solving the Extraterritorial Dilemma,
1988 U. Ill. L. Rev. 563. What is concerning for the asset concealer
is the meaning of the latter. Good faith attempts to comply with a
U.S. court order do not typically include refusal, however apologetic,
on the grounds of local illegality or violation of general privacy
considerations of the fiduciary's client. In practice the balance
between U.S. interests rarely, if ever, weighs in favor of the party
resisting disclosure. United States v. Davis, 767 F.2d 1025 (2d Cir.
1985); Bank of Nova Scotia I, 691 F.2d 1256 (11th Cir. 1982); Bank of
Nova Scotia II, 740 F.2d 817 (11th Cir. 1984); United States v. Vetco
Inc., 644 F.2d 1324 (9th Cir. 1981); State of Ohio v. Arthur Andersen
& Co., 570 F.2d 1370 (10th Cir. 1978); United States v. Field, 532
F.2d 404 (5th Cir. 1976); Garpeg Ltd. v. United States, 583 F. Supp.
789 (S.D.N.Y. 1984); Compagnie Francaise D'Assurance pour le Exterieur
v. Phillips Petroleum Co., 105 F.R.D. 16 (S.D.N.Y. 1984); Banca Della
Svizzera Italiana, 92 F.R.D. 111 (S.D.N.Y. 1981)(All resulting in
findings of bad faith on the part of the custodial agent).
Foreign Offshore Jurisdictions Respond
Many foreign states have sought to eliminate the dilemma by enacting
laws ("blocking statutes") re-enforcing banking secrecy. Blocking
legislation usually takes two forms. Judgment blocking, which
indicates that the enacting nation will simply not recognize certain
foreign judgments, and discovery blocking, which prohibit disclosures
for certain discovery requests.
It is interesting to note that much of the disagreement surrounding
the efficacy of judicially compelled extraterritorial disclosure seems
to revolve around a basic difference in approach for foreign states
and U.S. Courts. Mr. Brodeur, notes that foreign states usually find
themselves concerned with the applicability of U.S. jurisdiction in
their state and questions of sovereignty, where U.S. courts tend to
feel that the "pertinent legal conflict" revolves around the general
legitimacy of the compulsory disclosure orders themselves. While the
perspective of the United States is understandable, foreign states
have a point. Rare indeed is the U.S. court that bothers to assert
jurisdiction based on the 'required' finding for extraterritorial
extension of jurisdiction that the foreign entities activities have
sufficient "effects" within its borders. Brodeur notes further that
there is little precedent in international law for compelled discovery
orders and that many states protest such orders consistently. See,
International Law Association, Report of the Fifty-First Conference
407 (1964), documenting the protests of, e.g., Denmark, the United
Kingdom, France, the Federal Republic of Germany, Italy, Japan,
Norway, Sweden, Belgium, Greece, and the Netherlands. Most foreign
states view their active resistance to U.S. policy as a preservation
of their own sovereignty and policy. See, Rosenthal & Yale-Loehr, 16
N.Y.U. J. Int'l L. & Pol. 1075, 1080 (1984); Comment: Foreign Blocking
Legislation: Recent Roadblocks to Effective Enforcement of American
Antitrust Law, ARIZ. ST. L.J. 945 (1981).
Given the above, the asset concealer will want to select an entity
located in a jurisdiction with strict banking secrecy law and,
ideally, one which has enacted legislation blocking compelled
discovery. Such legislation will give the investor an idea of the
local policy and posture vis-a-vis the United States and compelled
discovery generally. Lists of such jurisdictions are somewhat
difficult to come by but the generally accepted (if dated) authority
on the subject is E. Chambost, Bank Accounts -- A World Guide to
Confidentiality 93-259 (1983). Chambost lists comprehensive
treatments of 44 countries that provided banking secrecy in 1983.
More recent publications include Grundy's Tax Havens, Tolley's Tax
havens, and the superior Practical International Tax Planning by
Marshall Langer. This publication is updated quarterly and if a
comparable alternative exists publicly, I am unaware of its existence.
Among the more robust of the listed countries are Great Britain, South
Africa, Australia, Germany, France, Italy, Denmark, Japan, Portugal,
Sweden, Belgium, Spain, Finland, Mexico, Norway, the Netherlands,
Andorra, Bahrain, Hong Kong, the British Virgin Islands, Guernsey,
Luxembourg, Isle of Man, Russia, the Bahamas, the Cayman Islands,
Hungary, Liechtenstein, Vanuatu, Panama, Singapore, Switzerland,
Lebanon, Malaysia, Nauru, Austria, Costa Rica, Klienwalsertal,
Jungholz, St. Vincent, the Turks and Caicos Islands.
The surest and longest standing banking secrecy jurisdictions have
historically been Austria, The Cayman Islands, The Bahamas,
Switzerland, Costa Rica, El Salvador, Liechtenstein, and Panama.
Unfortunately, with the growing EC/EU membership, Austria and
Switzerland have begun to lean away from their strict banking secrecy
and I personally find these jurisdictions to be a bit risky,
especially given Switzerland's recent legislation and adoption of the
latest round of banking reform treaties with the United States, which
I will treat later. While the treaty is not in full release as of
this writing I am able to disclose that it deals, among other things,
in detail with Banking Secrecy compromises.
Jurisdictions in which I found significant discovery blocking statutes
include: The United Kingdom, Australia, Belgium, Denmark, Finland,
France, Germany, Italy, the Netherlands, New Zealand, Norway, the
Philippines, South Africa, Sweden, and Switzerland.
Jurisdictions with judgment blocking which I consider sufficient
include the United Kingdom, Australia, Belgium, Canada, the
Netherlands, the Philippines, and South Africa. The most powerful
blocking statutes, (as in the United Kingdom) provide for the private
recovery against the disclosing party of funds lost as a result of
violation of the statute. The cautious asset concealer will seek such
a jurisdiction. It is wise to keep in mind, however, that many
jurisdictions do not have explicit blocking statutes on the books and
yet are as secretive, or indeed, more secretive than those which do.
Vanuatu is a good example of such a jurisdiction.
Still other jurisdictions find their basis for banking secrecy in
common law. Hong Kong: based on, Tournier v. National Provincial &
Union Bank of England, 1 K.B. 461 (C.A. 1924); Anguilla, Antigua,
Barbados, Bermuda, Montserrat, St. Vincent, the Turks and Caicos
Islands, (Fedders, Waiver by Conduct -- A Possible Response to the
Internationalization of the Securities Markets, 6 J. Comp. Bus. & Cap.
Market L. 1, 30 (1984) are among these.
The dedicated asset concealer will take note that discovery and
judgment blocking statutes, unlike banking secrecy laws, are not
waivable by banking customers. If placed in custody by local
authorities to effect compliance, the depositor will be unable to
effect his or her own release by instructing the foreign institution
to surrender the requested documents or information. Almost all such
blocking statutes require express governmental authority for
disclosure. The hard core concealer will recognize, however, that
many judges will be more sympathetic to the defendant who is unable to
comply, even in good faith, and may refuse to impose incarceration for
contempt as a result. While a factor, relying on the good graces of
the judge overseeing a proceeding involving the magnitude of assets
likely to be present is probably ill advised. Some jurisdictions
refuse to acknowledge the instructions of asset holders held against
their will. Others will refuse to acknowledge judicially compelled
consent orders. (The Cayman Islands). Still others will refuse to
release documents or funds unless the asset holder or fiduciary signs
a form personally in the offshore jurisdiction (which does not have
extradition treaties).
An array of anti-duress, coercion and compulsion provisions are
available from the more creative fiduciaries. For example, duress
code words triggering the transfer of assets to a separate random
jurisdiction at the trustee's discretion, or into the care of a
unnamed third trustee. In the latter instance, the first trustee can
plausibly deny any knowledge of the assets disposition. One
arrangement I am fond of is illustrative of the range of options
available to the innovative designer. Client A expects difficulties
with local law enforcement. If Client A's attorney learns of his
arrest or detention, he is instructed to call the trustee managing A's
assets. The trustee, when notified, would collect the documents from
his office, walk across the street and deposit the documents in a drop
box at a neighboring trust company. The trustee would then phone the
neighboring trust company and notify one of the managers of the
document deposit. The manager of the neighboring trust company would
select a nominee at random and instruct him to assume the duties
entailed by the documents in the drop box. In this way, even if
traced to the original trustee the assets are now managed and
assumably have been transferred by an entirely different trustee who
is unknown to the first. In the event A is released, he need only
accompany the original trustee to the neighboring trust company to
reclaim his assets.
Those countries which have statutes that U.S. courts have recognized
as criminalizing disclosures tend to represent the most stringent
tested blocking law examples. These include Mexico, (Securities &
Exch. Comm'n v. Minas de Artemisa, S.A., 150 F.2d 215, 218 (9th Cir.
1945) and Panama, In re Chase Manhattan Bank, 297 F.2d 611, 612-13 (2d
Cir. 1962). After 1962, most courts refused to take judicial notice
of the legality of disclosure in the foreign jurisdiction as it is
currently considered irrelevant to the proceedings.
While many of the statutes enacted to counter aggressive United States
discovery practices are based on the increasing anti-trust litigation
in the 1970's, anti-trust law is beyond the scope of this note. For a
detailed treatment See e.g., I E. Nerep, Extraterritorial Control of
Competition Under International Law 54-162 (1983).
The most important distinction in the appellate cases which have
denied motions to compel discovery of foreign documents in the face of
the foreign states criminalization of such disclosure, e.g., Ings v.
Ferguson, 282 F.2d 149 (2d Cir. 1960) First Nat'l City Bank v. IRS,
271 F.2d 616 (2d Cir. 1959) is that in both of these instances the
entities holding the documents or discovery information were not
themselves were not parties to the litigation. See, e.g., Ings at 152
(citing fact that custodian of records was not a party to the
litigation as a prominent factor in its reasoning). The astute asset
concealer will not use his concealing bank to, e.g., trade securities
illegally, and thus involve the concealing bank in the litigation.
Still, it should be noted that the existence of an agency relationship
provides an easy out for courts determined to compel discovery and the
easiest way to assure that ones concealing institution is not named in
a suit is to conceal the identity of the institution in the first
place.
While jurisdictions which have active blocking statutes requiring
governmental authority for a financial institution to release
depositor information or documents are probably safest, courts at one
time held that compelling a defendant depositor to actually instruct a
bank to disclose his financial records violates his fifth amendment
rights. See In re Grand Jury Proceedings, 814 F.2d 791 (1st Cir.
1987). Fifth amendment rights will be discussed more fully below.
Generally speaking, the asset concealer should avoid relying on the
fifth amendment absent extraordinary circumstances. For a full and
detailed treatment of the fifth amendment non-applicability in cases
involving judicially compelled document production, See Gordon Hwang,
Note: Fisher v. United States: Compelled Waiver of Foreign Bank
Secrecy and the Privilege Against Self-Incrimination, 56 Fordham L.
Rev. 453 (1987)(Concluding that "the act of producing a consent
directive... does not violate a witness' fifth amendment privilege
against self-incrimination").
Are High Profile Offshore Centers to be Avoided?
Further considerations for the U.S. asset concealer relate to the
Cayman Islands and like jurisdictions. For some time American
citizens traveling frequently to the Cayman Islands have experienced
increased law enforcement and tax scrutiny. While I won't speculate
as to the existence of a "black list," the glorious war on drugs has
assured that The Cayman Islands and her visitors have, on occasion,
attracted more law enforcement attention than the prudent asset
concealer would want to endure.
In addition, both the Bahamas and the Cayman Islands have signed
Mutual Legal Assistance Treaties ("MLATS") with the United States.
Though the Bahamian and Cayman MLATs both have important restrictions
on information relating to tax matters, the Bahamian treaty, requires
assistance in tax matters where the "offense" involves narcotics,
theft, violence, or dual crimes. The Cayman MLAT excludes tax and
currency offenses not relating to another criminal matter.
[...]
An excellent source for current high profile banking secrecy
jurisdictions can be the periodic study by the Subcommittee on
Investigations of the Senate Committee on Governmental Affairs, "Use
of Offshore Banks and Companies."
The Goals of the Asset Concealer and Selection of Jurisdiction
Tax Cases
The reason for secrecy is terribly important in deciding jurisdiction.
Of course, most litigation on the subject is with reference to
taxation actions. Jurisdictions with favorable laws for the "tax
problem" depositor have traditionally included Switzerland, the
Bahamas, the Cayman Islands, Bahrain, and Hong Kong. See Generally
Crinion, Information Gathering on Tax Evasion in Tax Haven Countries,
20 Int'l Law. 1209 (1986)(analysis of law and practice of obtaining
evidence from abroad in IRS investigations). Switzerland, however,
has leaned away from providing shelter to U.S. depositors accused of
tax evasion. While in practice Switzerland has been reluctant to
disclose the information of depositors engaged in tax litigation with
the United States and other nations, pressure from the U.S. has moved
Switzerland, grudgingly, to comply in many of these cases. Banking
secrecy in Switzerland remains more stringent in other areas, but her
deference to the United States is disturbing.
Securities Issues
Securities litigation is probably the next most frequent category of
case involving international discovery and the compelled discovery of
documents. Blocking and secrecy laws of those countries with robust
legislation will protect the asset concealer concerned with this area.
Many countries which have signed agreements with the United States,
notorious for its excessively energetic securities regulation, still
have found ways to avoid complete compliance through treaty loopholes.
Of particular note, with my previously expressed reservations about
newly emerging agreements, is the Swiss accord, The United States-
Swiss Treaty on Mutual Assistance in Criminal Matters 27 U.S.T. 2019,
T.I.A.S. No. 8302 (1977) which is fairly typical of such agreements.
Because the Swiss agreement requires that the alleged acts which are
the subject of the litigation spurring discovery be illegal in
Switzerland as well as the prosecuting nation, and because some U.S.
and other securities violations do not expressly "contravene" Swiss
law, the Swiss treaty is, in extremely limited circumstances, an open
tunnel for non-disclosure. See Generally, Brodeur supra.
Offshore entities are particularly useful in active trading for the
asset concealer anticipating securities regulation problems. Problems
with the SEC's Enforcement of U.S. Securities Laws in Cases Involving
Suspicious Trades Originating from Abroad, H.R. Rep. No. 1065, 100th
Cong., 2d Sess. 2-6 (1988). The sheer volume of international trading
on the large U.S. markets provides an excellent opportunity for
securities traders to become a "drop in the bucket." Reported
purchases of stock in the United States by foreign entities were $41.8
billion as early as 1982. Swiss banks alone may account for as much
as 20% of the trading volume on the New York Stock Exchange. Siegel,
United States Insider Trading Prohibition in Conflict with Swiss Bank
Secrecy, 4 J. Comp. Corp. L. & Sec. Reg. 353, 357 (1983). Because the
enforcement of securities laws within the United States has been so
dependent on disclosure and the open identity of the traders, many
have used this "weak link" to avoid unwanted attention by trading from
anonymous or nearly anonymous accounts abroad.
[...]
Some jurisdictions continue to provide a measure of safety against
outside investigation of fraudulent and illicit trading through
blocking and privacy statutes, Liechtenstein, Monaco, Luxembourg, and
the Cayman Islands are the best examples. See Generally, Rochelle G.
Kauffman, Note, Secrecy and Blocking Laws: A Growing Problem as the
Internationalization of Securities Markets Continues, 18 Vand. J.
Transnat'l L. 809, 819-26 (1985)(discussing countries with blocking
statutes and the effect of these laws on the SEC); Yvonne G. Grassie,
Recent Development, Foreign Bank Secrecy and Disclosure Blocking Laws
as a Barrier to SEC Policing of Transnational Securities Fraud, 65
Wash. U. L.Q. 259 (1987)(discussing judicial and administrative
efforts to deal with blocking statutes).
Occasionally, where suspicious trading originates from a country such
as Panama, Luxembourg, or Liechtenstein with blocking or secrecy
statutes and no bilateral agreements with the United States, the SEC
takes no investigative action. See Grassie. at 11 (statement of Mr.
Mountjoy). Where a bilateral agreement exists, the Commission is
often reluctant to invoke less it "wear out its welcome" with the host
country. Id. at 12-13 (investigation into suspicious trading through
Swiss banks in which conclusive indications that U.S. securities laws
had been violated existed still resulted in no request information to
the Swiss authorities).
Identifying foreign owners can be virtually impossible when ownership
must be traced through bearer shares, such as those issued by
Liechtenstein Anstalts, or when ownership is held through accounts in
jurisdictions with iron clad bank secrecy laws. See, e.g., Ingo
Walter, The Secret Money Market 185-237 (1990) (emphasizing use of
secrecy jurisdictions as means of avoiding detection and enforcement);
Marc C. Corrado, Comment, The Supreme Court's Impact on Swiss Banking
Secrecy: Societe Nationale Industrielle Aerospatialle v. United States
District Court, 37 Am. U. L. Rev. 827, 829-31 (1988)(reviewing Swiss
domestic policy rationales for bank secrecy); Michael Getler, Europe's
Ultimate Tax Haven, Wash. Post, Jan. 15, 1978, at H5; Liechtenstein;
Coming Clean, The Economist, Apr. 26, 1980, at 59; Steve Lohr, Where
the Money Washes Up, N.Y. Times, Mar. 29, 1992, at 27 (Magazine); John
Wicks, A Tax Haven Where Companies Outnumber the Population, Fin.
Times, Aug. 24, 1984, at 8. To deal with the challenges posed by
foreign ownership and trading, the U.S. Securities and Exchange
Commission has negotiated an intricate web of treaties and memoranda
of understanding. See, e.g., Richard M. Phillips & Gilbert C. Miller,
The Internationalization of Securities Fraud Enforcement in the 1990s,
25 Rev. Sec. & Commodities Reg. 119 (1992). Switzerland now often
conditions permission to trade on U.S. securities markets with a
waiver of secrecy.
[...]
(End of Segment 1 of Volume I)
---
My preferred and soon to be permanent e-mail address:unicorn@schloss.li
"In fact, had Bancroft not existed, potestas scientiae in usu est
Franklin might have had to invent him." in nihilum nil posse reverti
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