(Volume I - Part 2 of 2)
The Constitution is of No Help.
The asset concealer who hopes to rely on the constitution to protect
him might wish to consider the view of one noted scholar:
"The Constitution provides little protection for account holders.
Courts describe the interest of the United States in enforcing its
laws as overwhelming and the ability of prosecutors to uncover
evidence of criminal conduct as essential. That interest usually
overwhelms any possible constitutional right of a bank customer.
United States v. Miller rejected the Fourth Amendment's Search and
Seizure Clause as a basis for a privacy right in bank records." (Todd
Jones, Compulsion Over Comity: The United States' Assault on Foreign
Bank Secrecy, 12 J. Intl. L. Bus. 454), and cases since have followed
this holding almost religiously.
As discussed briefly above, it is likewise unlikely that the fifth
amendment will protect the asset concealer to any degree of certainty.
Several cases have held that fifth amendment rights do not apply to
banking records or financial information. Zicarelli v. New Jersey
State Comm'n of Investigation, 406 U.S. 472, 478 (1972)(Banks and
other institutions cannot invoke the self incrimination clause of the
Fifth Amendment); Braswell v. United States, 487 U.S. 99, 102 (1988);
Bellis v. United States, 417 U.S. 85, 89-90 (1974). On the fifth
amendment concerns See Generally, Comment: Sidestepping Foreign Bank
Secrecy Laws: No Sanctuary in the Fifth Amendment and Little in the
Interest of Comity, 10 Hous. J. INT'L L. 57, 57 n.1 (1987).
Corporate entities have no Fifth Amendment protection at all by virtue
of their agent status, Bellis v. United States, 417 U.S. 85, 89-90
(1974), and more and more such protection is withheld even if the
corporate entity is a co-defendant. Braswell v. United States, 487
U.S. 99, 102 (1988). Exceptions may exist for those entities which
are operated as sole proprietorships. Braswell at 104 citing United
States v. Doe, 465 U.S. 605 (1984).
The cases following In re Grand Jury Proceedings, 814 F.2d 791 (1st
Cir. 1987) demonstrate how the fifth amendment has been eroded or
eliminated in application to this problem. In the In re case the
defendant was directed by the district court to sign a consent form
permitting the disclosure and production by a financial institution of
documents protected by Singapore banking secrecy law. On refusing to
sign, the defendant was held in contempt. The investigation alleged
reporting and currency violations. The defendant appealed to the
First Circuit which held the signature as both "testimonial" and
"self-incriminating." The court reasoned that the consent form
"amounts to an assertion" that the bank customer consented to
production of the requested records and that it was "self-
incriminating" because it could be used to demonstrate incriminating
facts (e.g., that the accounts in the witness's name existed and were
within the witness's control). Even at the time, however, this
decision was in conflict with the Second, Fifth and Eleventh circuits,
which have held such an order does not violate the fifth amendment.
(Typically on the grounds that the forms signed were non-testimonial).
Lately, clever prosecutors and private litigants have evaded the
testimonial hitch entirely by phrasing their consent forms in the
hypothetical, and not naming specific account names or numbers. The
Supreme Court upheld the order of contempt for a defendant refusing to
sign such a document. See, Doe v. United States, 108 S. Ct. 2341
(1988). The Court noted that the form was carefully drafted not to
make reference to a specific account, but only to speak in the
hypothetical. Compare the unconstitutional language of the In Re
Grand Jury form:
"I [witness], consent to the production to the [District Court and
Grand Jury] of any and all records related to any accounts held by, or
banking transactions engaged in with, [bank X], which are in the name
of, or on behalf of: [witness], if any such records exist."
with the now constitutional:
I, [witness], of the State of New York in the United States of
America, do hereby authorize and direct any bank, trust company, or
other financial institution located outside of the territorial United
States at which I have or have had an account of any kind, or at which
any corporation has or has had an account of any kind upon which I am
or have been authorized to draw, to disclose all information and
deliver copies of all documents of every nature in the possession or
control of such bank, trust company, or other financial institution
which relate to any such accounts, together with a certificate
attesting to the authenticity of any and all such documents, to any
agent or employee of the United States Government who presents a copy
of this Consent Directive which has been certified by the Clerk of the
United States District Court for the Northern District of New York to
such bank, trust company, or other financial institution, and this
Consent Directive shall be irrevocable authority for doing so. United
States v. A Grand Jury Witness, 811 F.2d 114 (2d Cir. 1987).
For more examples See also, United States v. Davis, 767 F.2d at 1040
(holding any problem of testimonial self-incrimination is solved by
such an order precluding use of directive as admission); In re Grand
Jury Proceedings, 814 F.2d at 795 (expressly approving of reasoning in
Davis); United States v. A Grand Jury Witness, 811 F.2d 114, 117 (2d
Cir. 1987); United States v. Cid-Molina, 767 F.2d 1131, 1132 (5th Cir
1985); United States v. Ghidoni, 732 F.2d 814, 818 (11th Cir.), cert.
denied, 469 U.S. 932 (1984); United States v. Browne, 624 F. Supp.
245, 248 (N.D.N.Y. 1985); United States v. Quigg, 48 A.F.T.R.2d 81-
5953, 5955 (D. Vt. 1981).
Even more importantly, the character of the "documents" themselves,
public or private, electronic or paper, would seem to be a factor
courts will refuse to consider. Fisher v. United States, 425 U.S.
391, 410-11 (1976) rejecting both an analysis based on the nature of
documents and privacy as the policy supporting the fifth amendment.
Some protection still exists. Many jurisdictions refuse to recognize
"consent" orders signed under judicial compulsion. See, In re ABC
Ltd., 1984 C.I.L.R. 130 (1984) (Grand Court of the Cayman
Islands)(Consent directives compelled under threat of contempt
sanctions do not constitute consent under Cayman Bank Secrecy Law); In
re Confidential Relationships (Preservation) Law, Law 16 of 1976,
Cause No. 269 of 1984 (Grand Ct. Cayman Islands July 24, 1984).
[...]
IV. Esoteric Considerations
Intelligence threats:
The asset concealer should note that financial institutions have
increasingly become the target of foreign intelligence operations.
The IRS has conducted intelligence operations against foreign banks
extensively in past and the scope of such operations in the present is
unclear. From 1965-1975 the intelligence division of the IRS's
Jacksonville, Florida district conducted operations named "Tradewinds"
and "Havens." Both operations were designed to gather intelligence on
American investors in offshore banking entities, and expose potential
tax evasion and criminal activity. Several IRS agents testified on
the operations before the House Committee on Government Operations in
the First Session 94th Congress, 1975. In 1965, when the Bahamas
enacted its bank secrecy legislation criminalizing the release of
banking information, the IRS turned to paid informants within the
banking community to elicit information about the banking activities
of U.S. citizens, a tactic that violated Bahamian law. The most
dramatic of these was the "briefcase caper," wherein a female IRS
informer "entertained" a Bahamian banker while her accomplice
photocopied the contents of his briefcase. United States v. Payner,
434 F. Supp. 113 (N.D. Ohio 1977), rev'd, 447 U.S. 727 (1980) The IRS
finally ceased the operation in 1975 when it admitted that it had
obtained information in violation of federal law.
The IRS has also shown a propensity for illicit information gathering
from the mails. At one time in the late 1960s, the IRS combed through
mail to identify those U.S. citizens who received mail from Swiss
Banks. Though most Swiss banks at the time mailed their customers
using unmarked envelopes, the IRS aggressively pursued traffic
analysis in the mails. Agents from the IRS mailed inquires to several
Swiss banks and recorded the number of the postal meters used to
respond. These collected numbers were matched against international
mails using high speed copiers at the port of entry and those matching
the postal meter numbers were audited at "random." The practice was
later upheld in United States v. Leonard, 524 F.2d 1076, 36 (2nd Cir.
1975) cert. denied, 425 U.S. 958 (1976), and some 150 taxpayers were
prosecuted. Generally speaking, the Supreme Court has upheld the use
of illegally obtained information in tax cases in United States v.
Payner, 447 U.S. 727 (1980).
Given the success of the IRS operations ($52,000,000 at a cost of
$1,500,000 according to the hearings on Tradewinds and Haven) it is
difficult to imagine that these methods have been entirely abandoned.
Moreover, the asset concealer should recognize that today private
litigants have access to the most professional intelligence services
themselves. Organizations like The Investigative Group, Inc., Kroll,
Pinkerton, and Control Risks, Inc. have recruited former investigative
and intelligence professionals aggressively and offer their services
to private litigants as a matter of course. Given the forgoing the
private banking option, below, becomes more and more attractive.
Pressure from the IRS alone is not the only concern that asset
concealers might wish to consider. Congress has more than once called
for sanctions against banks that do not bow to the wishes of the
United States. Staff of Senate Subcomm. On Narcotics, Terrorism and
International Operations, 101st Cong., 2d Sess., Drug Money
Laundering, Banks and Foreign Policy 32 (Comm. Print 1990) Given
this, the serious asset concealer should consider using banks that
hold no assets in the United States, and which do not conduct normal
banking business in the United States, as these assets, or the banking
charter generally, could easily be suspended, frozen, or revoked.
[...]
The Anatomy of a Money Laundering Investigation
[...]
Private banks
The asset concealer may also wish to consider the option of a private
bank. Private offshore banks provide individuals or small groups of
investors with their very own financial institution. This, of course,
reduces the number of individuals with access to banking information,
allows for the more direct control of records, and all but eliminates
the potential for coercion of a large banking parent. In addition,
private banks create a captive source of loans for investors, provide
additional funds at interbank rates, allow the payment of interest tax
free, the participation in tax free international underwriting, assist
clients in international trusts and corporation formation, and
eliminate many overhead costs of banking. If one can balance the
costs and government fees of forming such a bank, they are the most
secure and direct method of asset concealing.
Asset concealers who wish to pursue this option would do well to keep
in mind that their choice of corporate form for their financial
institution will impact their fifth amendment protections. Braswell
v. United States, 487 U.S. 99, 102 (1988)(Normal rule stripping fifth
amendment protections from financial institutions refusing to comply
with compelled discovery orders even when named as co-defendants may
not apply for those entities which are operated as sole
proprietorships).
In the cases of securities related charges, where at one time charges
could be filed solely on the basis of the defendants invocation of the
fifth amendment in reference to questions about the existence of
foreign bank accounts of financial dealings, in the absence of a
direct connection, such an assertion alone is no longer enough to
warrant an action. See Comserv Corp., 698 F. Supp. at 789. (Absent
other evidence assertion of Fifth Amendment privilege is "not a
sufficient basis for the SEC's action." Id. See also Pagel, Inc. v.
SEC, 803 F.2d 942, 946-47 (8th Cir. 1986)(citing Baxter v. Palmigiano,
425 U.S. 308, 317 (1976)).
Until around 1965, establishing banks in the Bahamas and other islands
was simple. Forming a normal corporation and granting it banking
powers was about the extent of the efforts required. The Bahamas
eventually tightened restrictions and while there are still over 350
banks on the island, establishing new entities is more difficult
today. The Cayman Islands followed suit in 1966, enacting legislation
virtually identical to that of the Bahamas. Additional legislation
passed in 1989 modifies some of the 1966 rules.
While a "bank" is nearly impossible to organize in Bermuda today,
finance companies can be organized to conduct some quasi-banking
activities. The most attractive, and least regulated of the major
jurisdictions today are Turks and Caicos, and Vanuatu. Turks and
Caicos, while regulating "banks" a bit more strictly, allows almost
unregulated formation of trust companies. Vanuatu permits the
formation of exempted banks, making it perhaps the most attractive
jurisdiction for the asset concealer interested in forming his or her
own financial institution. To some extent is it possible to form a
financial institution in Switzerland, but this has become increasingly
difficult, and the highest standards for capital pay in and reputation
make it prohibitively restrictive for most asset concealers.
Jersey, Luxembourg and Guernsey are other options, but all still
impose strict regulations on the formation of new banks. Luxembourg
requires that the banking business be conducted locally, that the new
bank be sponsored by two well established banks, and that at least 350
million Lux.F. be paid in prior to formation. Panama still allows
offshore bank creation with limited fees and a low paid in capital
requirement of $250,000 which must be deposited locally. New banks
must generally be backed by large and reputable banks. I remain
suspicious of actual banking activities in Panama, however,
considering the increased U.S. presence in the country since the
ousting of her former dictator.
Netherland Antilles also allows formation of offshore banks which are
generally treated like investment companies. Offshore banks can be
granted a flat tax of 6% on income and require only a 20% pay in of
the capital requirement which is NAf 1 million. (1NAf=$0.56 at the
time of this writing). Nauru permits offshore banks but a reputation
requirement often prevents novice applicants from easy approval.
Nauru does, however, have very low licensing fees, which are usually
not more than normal trading or holding corporations.
Shell banks (those without substantive assets of any kind) were
popular until 1977. They required no paid in capital and were
commonplace in Anguilla and St. Vincent. While technically such
institutions no longer exist, some of the smaller jurisdictions have
difficulty enforcing their capital and debt-equity ratio requirements,
often creating "effective" shell bank opportunities after an initial
showing of capital which is later removable. For the prudent asset
concealer, however, shell banks will present a less than desirable
alternative to meaningful bank licenses in legitimate jurisdictions.
My own views aside, conventional wisdom holds that offshore banks are
best formed in the Bahamas and Cayman Islands. Both of these
jurisdiction's license applications can exceed 100 pages. Directors
are generally required to offer proof of bona fide banking experience,
officers, managers and shareholders required to make disclosures, and
references checked. In many cases, as with Vanuatu for example,
stand-ins for officials, directors and managers are available through
local trust services. Initial capital statements are typically
audited. Paid in capital requirements are usually $250,000 or more.
The Cayman Islands and other jurisdictions allow substitution of
capital for guarantees from reputable banks or trust companies.
Almost every jurisdiction requires annual license fees.
[...]
See Generally, Peat Marwick's numerous publications.
Using Private Banks to your Advantage
[...]
Bearer Shares
Bearer shares are an immensely useful tool to the asset concealer.
Bearer shares are certificates of equity ownership which are freely
transferable and embody full ownership rights to the holder. They do
not bear the name of the shareholder or beneficiary and are not
registered. Bearer shares are generally numbered certificates with
removable serialized coupons attached which can be exchanged for
dividend payments, much like bond coupons. Bearer shares with voting
rights are generally tallied by deposit with a designated bank in
exchange for corporate voting ballots issued by the bank before
shareholder meetings. Because Bearer shares are not registered, and
entitle the holder to the full benefits of ownership, and because
dividend coupons are detachable, a stockholder in the corporation can
be completely anonymous and a distinct entity from those entitled to
dividend payments.
Typically on formation trustees accept bearer shares in the
corporation and later pass them to the actual shareholders who may in
turn separate the dividend rights, transfer the shares, or both, to a
third party. In this manner the ownership of the corporation is
almost entirely shielded. Antigua, Barbuda, Liberia, Liechtenstein,
Luxembourg, Nauru, Netherland Antilles, Panama, Switzerland, and Turks
and Caicos all permit bearer shares, as do Cayman and Vanuatu for
exempted companies.
V. Reviews of Specific Jurisdictions
Why I don't like Switzerland anymore
Not obscure enough. Spineless. Switzerland has, perhaps for
legitimate reasons at first, attracted a tremendous amount of
attention as a banking secrecy jurisdiction. The astute asset
concealer will avoid such jurisdictions where possible as they tend to
attract suspicion and law enforcement attention. For example, a 1981
study by Swiss National Bank and the public prosecutors office
attributed 26 kidnapping incidents in 1970 and 1978 to Swiss money
laundering elements in the ransom demands. (Massnahmen gegen
"Geldsauberung," Neue Zurcher Zeitung, (NZZ) May 9/10, 1981, No. 106
at 9). High profile customers in Swiss banks have attracted so much
public attention as to make the jurisdiction extremely high profile.
See, e.g., N. Schmid, Banken Zwischen Legalitat Und Kriminalitat 189-
191 (1986) (King Faisal of Iraq, King Faruk of Egypt, Algerian
Liberation Front, Ex-Shah of Iran Pahlevi, and Presidents of
Argentina, Kongo-Katanga, Nicaragua); Internationale Rechtshilfe -
Gefahr fur das Bankgeheimnis, NZZ, Aug. 30, 1989, No. 200 at 21
(Marcos, Irangate, drug mafia); The Lifestyle of Rich the Infamous,
FORTUNE, Dec. 2, 1988, at 38 (tax fugitive Marc Rich). Cf.
Nationalrat will scharferen Geldwascher-Artikel, Tages-Anzeiger, Nov.
28, 1989, No. 277 at 9 (statement of member of Swiss House of
Representatives)("...no country can point to as many illegal banking
transactions as Switzerland").
In 1977 a private agreement between the Swiss Bankers' Association
("SBA") and member banks of the SBA took effect. The agreement
establishes a duty of due care in the identification of potential
account holders and depositors and is intended to reduce the incidence
of rampid criminal activity through Swiss banks. (Vereinbarung uber
die Sorgfaltspflicht bei der Entgegennahme von Geldern unde die
Handhabung des Bankgeheimnisses)(VSB 1977). In addition, the Bankers'
Agreement contains a stipulation that depositors wishing to trade on
United States securities markets are required to waive their rights to
secrecy as a condition to trading. The SBA provides in detail for SEC
investigations into securities violations involving Swiss banks.
The "Lebanon Connection," was the scandal that most turned the tables
on Swiss banking secrecy. (Allegations that several of Switzerland's
major banks assisted Turkish-Lebanese drug ring over in the laundering
of proceeds totaling over 1.6 billion francs. Taglich eine Million
Dollar gewaschen, Graber, Geldwascherei 42 (1990). See also,
Wichtiger als Geldwascher bestrafen ist die Verbrecherorganisation
treffen, Tages-Anzeiger, Nov. 12, 1988, No. 265 at 33 (Lebanon
Connection largest Swiss money laundering scandal to date);
Geldwascherei: Dampf aufgesetzt, Schweizerische Handelszeitung (SHZ),
Nov. 10, 1988, No. 45 at 17 (Illegal drug profits entered Switzerland
on daily basis via couriers carrying briefcases filled with dollar
bills in small denominations).
Immediately after, the Swiss Federal Council (Bundesrat) streamlined
the typically lethargic elements of Swiss legislative efforts to
criminalize money laundering, and the new legislation was approved by
the Swiss Parliament to take effect August 1, 1990 P. Bernasconi,
Grenzueberschreitende Wirtschaftskriminalitat, 83 Schweizerische
Juristische Zeitung (Sjz) 73, 82 n. 24 (1987). Cf. P. Forstmoser &
A. Meier/Hayoz, Einfuhrung in das Schweizerische Aktienrecht 329 (4th
ed. 1989). Under the law, money laundering crimes are punishable by
imprisonment for up to five years and by fines of up to one million
Swiss francs. (Scweizerisches Strafgesetzbuch, Code Penal Suisse,
Codice Penale Svizerro, art. 47, 273). Because the Mutual Assistance
Treaty with the United States permits release of banking records to
the United States in the event the activity is illegal in both
countries, it would seem that money laundering investigations will
grant prosecutors the right to request, and obtain Swiss banking
records.
Switzerland has gone on to eliminate the "Form B" account.
(permitting a proxy to vouch for the depositor, and effectively making
the account anonymous subject to the proxy's trustworthiness. Swiss
Bankers Ass'n, Convention de Diligence Banquers, Form B (1987)). As
of April 25, 1991 Swiss banks are now required to record the identity
of the beneficial owner of depositor accounts, leaving a wider paper
trail for U.S. prosecutors. According to one commentator, "In short,
the United States now has an extremely powerful vehicle with which to
pierce the veil of Swiss banking secrecy..." Kanwar M. Singh, Nowhere
to Hide: Judicial Assistance in Piercing the Veil of Swiss Banking
Secrecy, 71 B.U.L. Rev. 847.
Even given the legislative tendency to erode Swiss secrecy, one must
understand that the image Swiss banking secrecy has been much inflated
in public opinion. Swiss banks have become very conscious and wary of
indiscriminately opening accounts which may be the subject of illegal
funds receipt. Swiss banks are increasingly reluctant to open new
numbered accounts. "Coded" accounts are typically granted only to
current customers. Truly "anonymous" accounts do not exist at all in
Switzerland. Instead, numbering is directed to avoid internal
violations of banking secrecy and problems along the line of the
Bahamas "briefcase caper." Honegger, Demystification of the Swiss
Banking Secrecy and Illumination of the United States Memorandum of
Understanding, 9 N.C.J. Int'l L. & Com. Reg. 1, 17 (1983). In fact,
contrary to popular belief, purely anonymous accounts do not exist at
all in Switzerland. H. Bar, The Banking System of Switzerland 61
(1957). At the very least one or more senior bank employees will know
the depositor's identity. Even in the case of Form B accounts,
records of depositors were typically kept privately by higher
officials in the bank.
When taken as a whole, the legislature's specific indication of its
willingness to erode the protection of banking secrecy in Switzerland,
the pending legislation, interest in EU membership, acceptance of the
European Convention on Money Laundering, four other anti-secrecy laws
recently passed in Switzerland along with the more intrusive internal
policies of Swiss bankers, my interest in Switzerland as an asset
concealing jurisdiction is much eroded. See Generally, Rebecca G.
Peters, Money Laundering and Its Current Status In Switzerland: New
Disincentives for Financial Tourism, 11 J. Intl. L. Bus. 104 (1995).
For a defense of the current status of Swiss banking secrecy, however,
See Paolo S. Grassi and Daniele Calvarese, The Duty of Confidentiality
of Banks in Switzerland: Where it Stands and Where it Goes. Recent
Developments and Experience. The Swiss Assistance to, and Cooperation
with the Italian Authorities in the Investigation of Corruption Among
Civil Servants in Italy (The "Clean Hands" Investigation): How Much is
Too Much?
Why I like Panama.
At one time, Panama was regarded as the leading tax and securities
trading haven in the Western Hemisphere. 3 W. Diamond & D. Diamond,
Tax Havens of the World, at Panama-1 (1989). While the political
upheaval and overthrow of Manuel Noriega have changed much, many
aspects of Panamanian law remain friendly to the asset concealer.
Panamanian corporations have no minimum capital requirement, and
registered shares are not required to be completely paid in. While
corporate law requires two shareholders for the purpose of electing a
board of directors, (which can consist of only three persons, none of
whom must own shares), after the board is elected the corporation may
be reduced to one shareholder. Ownership can be effectuated through
bearer shares if they are fully paid in, and there are no citizenship
requirements except for the appointment of a resident agent, who is
generally the incorporating agent.
"Bearer shares" are well entrenched in Panamanian law. They allow
corporate ownership to be shielded quite effectively from
identification by permitting the corporation fully transferability in
private face to face transactions of nothing more than the corporate
share certificates. Typically, an agent handles incorporation, and
exchanges the bearer certificates with the principal, who then may
even exchange it with a second principal, completely shielding the
final holder of the corporation from identification by the agent
absent the cooperation of the first principal. Bearer shares will be
discussed more fully below. In addition, Panama continues to maintain
strict banking secrecy laws and no taxation of income produced from
sources outside the country. Large investors may enjoy the benefits
of extensive investment and capital incentives. Banking Law of
Panama, Law No. 16, Arts. 2-4 (Jan. 28, 1959).
These arrangements have particularly suited Panamanian corporations
for discrete, indeed totally confidential, securities trading on U.S.
markets. Many traders have used Panamanian corporations extensively
in this regard, and even where the existence of the corporations and
their complicity in insider trading has been established, few
investigations have been able to bear the burden required to secure
convictions. See, e.g., SEC v. Levine, Civ. Action No. 86-3726
(S.D.N.Y. filed May 12, 1986)(alleging defendant Levine made
securities trades based on inside information through two Panamanian
corporations beneficially owned and controlled by Levine) In re Joseph
A. Lugo, Admin. Proc. File No. 3-6740 (Lexis, Securities library,
Releases file)(May 10, 1988)(Panamanian bearer stock corporation
involved in scheme to defraud investors); SEC v. Palmer Fin. Corp.,
Litigation Release No. 12,082, 43 SEC Docket 1230 (D.D.C. May 3, 1989)
(violations of Sections 13(d) and 16(a) of the Exchange Act).
The combination of opaque ownership anonymity and non-cooperation with
authorities even in criminal investigations makes Panama the ideal
first tier expatriation jurisdiction, and an excellent re-investment
vehicle.
Panama's entities will be discussed in more detail in the second
"implementation case study" section below.
Why I like Liechtenstein
I must disclaim my passage here by disclosing that I am personally
involved in business, banking, and government in Liechtenstein.
Despite her neighbor's less than favorable bent, Liechtenstein remains
a powerful jurisdiction for the asset concealer. The primary vehicle
employed is typically the Liechtenstein Anstalt, but Foundations and
general trusts are also exceptionally effective.
Unlike Luxembourg and Dublin, Liechtenstein, by virtue of her disdain
for EU membership, will not be burdened by the proposed standard EU
withholding tax to which even Switzerland and the Channel Islands may
eventually be subject. Though the Channel Islands and the Isle of Man
are technically outside the EU area, many point to their presence
within the "sterling area" as dangerous with regard to the proposed
tax's reach. Liechtenstein is also much easier to reach than most
island offshore havens.
Perhaps best of all, foreign judgments, except in Switzerland or
Austria, are not enforceable in Liechtenstein. Private plaintiffs
will waste their time seeking local assistance in attaching assets.
Liechtenstein Entity Forms
The Anstalt
The Anstalt or "Establishment" is a corporation which is more
accurately characterized as a international holding corporation.
Typically financial or controlling interests in foreign corporations
and other entities are left in the care of an Anstalt and thus in the
jurisdiction of Liechtenstein. In many ways Anstalts function much
the way that conventional trusts do. An Anstalt can be founded with
only one "founder" or "promoter" who is typically an agent local to
Liechtenstein acting for an anonymous owner. The local agent holds
the charter of ownership on the Anstalt, which is the only record of
the actual beneficiary of the entity, and can be made a bearer
document. Owners of Anstalts enjoy advantages such as: Thirty year
tax rate freezes, no mandated debt-equity ratio, liability limited to
assets, and extremely low taxation. Some 70,000 Anstalts exist,
though the precise number is a closely held secret (to avoid any
attempt at process of elimination guesswork). There is a one time fee
to establish an Anstalt, generally SwFr 1,000 or 3% of the starting
capital, and a yearly tax on net assets of the greater of 0.1% or SwFr
1,000. Dividends are taxed at 4%. A minimum capital requirement of
SwFr 30,000 exists for Anstalts, but can typically be waived.
Taxation is more complicated for commercial entities in Liechtenstein,
and auditing requirements apply, but generally taxation falls within 6
to 18%. There are no reporting requirements for Anstalts which do not
themselves conduct commercial activities.
Some problems with the Anstalt still remain. Anstalts, like
Panamanian corporations, are generally bearer certificate owned and
easily transferable as a result. Because of this, and the fact that
most Anstalts are single owner entities, asset disputes can result if
the bearer document falls into the wrong hands.
The Treuunternehmen
Treuunternehmens or "Trust Enterprises" are modeled after the
Massachusetts trust and are generally unlimited as to its structure.
Offshore activities, while better left to other jurisdictions in
general, can be best effected through Treuunternehmens.
The Stifung
For the wealthiest clients, the security of Liechtenstein's
foundations (Stifungs) are unparalleled, even in the offshore world.
While establishing a Stifung requires a due diligence finding by the
trustee or founding attorney of the client's general good character,
the disposition of the funds applied after the founding of a Stifung
will be unscrutinized. Stifungs require a separate offshore holding
company for administration, have a board of directors, and a
trustee/attorney. The beneficiary is known only to the directors, and
the attorney. Like Anstalts and Treuunternehmens, Stifungs offer
limited liability. Stifungs can be best described as autonomous funds
without corporate structures.
Stifungs too have some cautionary notes attached. The director of a
Stifung may take a narrower view of the distributions of assets than
the original founder originally intended. As directors are usually
singular in Liechtenstein Stifungs, there is no recourse to
disgruntled beneficiaries. Of course, these problems are easily
solved if a close and trusted person can be appointed as the founder.
Many trustees suggest the original founder's successor be appointed
automatically on the death of the former. Additionally, paying out on
the entire net worth of the Stifung tends to assure the correct
ownership attribution.
All of these entities are perfect for the asset concealer who wishes
to stand before a local court and deny ownership of additional assets.
In addition to being technically true of the beneficiary of an Anstalt
or Stifung, it has the additional advantage of being entirely
uncontradictable. Anstalts can be in bearer form, and Stifung
founders are typically trustees. A measure of the frustration of U.S.
regulatory and prosecuting authorities in tracing the owners of
Anstalts can be seen in the slew of U.S. proceedings with similar case
names. e.g., SEC v. Certain Unknown Purchasers, No. 81-Civ-6553
(S.D.N.Y. July 25, 1983)
The Aktiengesellschaft
Aktiengesellschafts, "Share Companies," or "Stock Corporations" are
primarily Anstalts for larger number of beneficiaries, and provide
more complicated vehicles for share distributions and stricter
internal board requirements. They also have an initial capital
requirement of SwFr 50,000. Bearer or registered shares are
permitted. Shares may be held by nominees. Aktiengesellschafts are
required to keep proper books, appoint qualified auditors, and submit
balance sheets to Liechtenstein tax authorities.
While holding corporations are a simple matter to establish, less than
savory investors will have difficulty with direct banking.
Liechtenstein has been conscious of her international reputation, and
generally more fussy about her banking clients. Those depositors with
less than SwFr 250,000 will be unable to expect much personal
attention even if bankers will generally not turn away small
depositors. Depositors with SwFr 1,000,000 or more can expect fuller
service banking services including portfolio advice. Depositors with
SwFr 3,000,000 can expect completely individualized service, including
discretionary management by multiple fund managers directed to the
client's individual needs. Forming individual financial institutions
is extremely difficult.
Secrecy
Generally, Liechtenstein enjoys much more potent secrecy than her
neighbor Switzerland, but because this has been somewhat eroded by
international money laundering agreements and exceptions for criminal
enterprises, she is a better reinvestment and shell management vehicle
than expatriating entity.
The SEC's own Mr. Haberman commented once on Anstalts, "We've traced
stuff to Anstalts in the past and then couldn't get anywhere - where
the money came from, who the beneficiaries were, nothing." Indeed,
even where the ownership of the Anstalt is "obvious," proving it in
court without the charter documents or extensive showings of financial
information is all but impossible. The combination of a Liechtenstein
Anstalt as an umbrella for offshore corporations in other
jurisdictions and bank accounts in a separate, potent banking secrecy
jurisdiction is thus an excellent concealing combination.
Criminal activities, particularly drug related, are likely to remove
the veil of secrecy, but unlike Switzerland, Liechtenstein's bankers
have not explicitly adopted the SBA's 1982 "due care" agreement.
Secrecy in regard to tax matters is as absolute as can be found
worldwide. Liechtenstein and her financial institutions will under no
circumstances whatsoever render any assistance to tax authorities.
Assistance in criminal matters, even in light of the recent money
laundering compact, is limited to those cases where the activity in
question reflects badly on Liechtenstein as a financial center.
Criminal investigation assistance under the Legal Assistance Act
expressly provides for natural and legal entity secrecy even in
cooperation with foreign authorities unless the crime in question is
also illegal in Liechtenstein. Assistance in the case of criminal
charges stemming solely from tax evasion or currency infringements and
related offenses will be curtly denied.
The 1992 provisions criminalizing drug-trafficking
(Betaaubungsmittelgesetz). provide for five year sentences for those
acting to hinder the discovery or retention of assets related to
illegal drug production, distribution, storage, etc. 1995 provisions
adopting Europe's convention against money laundering expands the
exceptions to banking secrecy to proceeds having their origin in any
sort of criminal offense which is also illegal in Liechtenstein.
Lawyers and trustees have a right of silence in any administrative or
judicial proceeding, and secrecy is expressly written into statutes in
several places.
Liechtenstein is best used as a tax shield and post expatriation
umbrella for asset reinvestment rather than initial expatriation.
For a detailed treatment of Liechtenstein Laws with regard to insider
trading, See, Emmanuel Gaillard, Insider Trading: The Laws Of Europe,
The United States And Japan, 1992. For a critical look at
Liechtenstein secrecy entities, See, Liechtenstein's Uncertain
Foundations, Anatomy of a Tax Haven, UE Ramati, Hazlemore Ltd Tax
Publications, Dublin.
Why I Like (sort of) The Cayman Islands
While the Islands have attracted increased law enforcement attention
of late, they remain very attractive as a base for offshore
corporations. Cayman typically implies no-direct taxation, is not a
party to any tax treaties, and grants exceptionally secure assurances
against future increased taxation. Cayman has excellent
telecommunications systems, offers direct dialing to offshore
locations and remains on eastern standard time all year long.
Government fees are the greatest burden to the asset concealer.
The real hitch in the Caymans is the mutual legal assistance treaty
between the United Kingdom and the United States. The treaty provides
for information sharing in those instances where crimes are mutually
recognized. This, of course, excludes tax related offenses if they
are not connection with otherwise criminal activity. Investigations
into narcotics trafficking activates a more liberal agreement which
gives the U.S. Attorney General direct access to otherwise
confidential information regarding Cayman Islands account holders.
Entities in the Caymans
Every Cayman company is required to keep a register of its directors,
officers, mortgages, charges, and shareholders. Exempted companies
may keep their registers anywhere in the world, others must keep it
locally. Exempted companies are not required to disclose any of their
shareholders publicly.
Cayman corporations are divided into three types. Local companies,
exempted companies, and nonresident companies. Local companies are
permitted to conduct business in the islands. Exempted companies are
the general vehicle used to conduct offshore business and while they
may use a local office to do so, they may not themselves conduct local
business. Nonresident companies are less flexible than exempted
companies, but are less expensive to form.
Companies can typically be formed in one to two days and the documents
are fairly simple. Nearly 2,500 new companies are formed every year
in the Caymans, offering the asset concealer ample opportunity to be
lost in the crowd.
Exempted companies are granted a 20 year stay on taxes of any kind.
Unlike non-resident companies, exempted companies can issue bearer
shares, no par value shares, and need not include "Limited" or "Ltd."
as part of their business name.
Directors of exempted companies must hold at least one meeting a year
locally but alternate directors are permitted and often trust company
stand-ins are used. While exempted companies can have a single
shareholder, nonresident companies must maintain 3 or face personal
liability of the shareholders for company debts. Exempted companies
cannot invite Cayman citizens to hold shares or debentures, though
unsolicited share and debenture purchases are permitted to them.
Private Banking
Cayman is particularly useful, even given the criminal legal
assistance treaties, in its ease of banking entity establishment.
More than 500 licensed banks exist on Grand Cayman, and several trust
companies have been formed in the last decade. Banks and trust
companies must be licensed by the Governor and Executive Council.
Class A licenses permit local and offshore operation, and Class B
licenses permit only offshore operation. Multinational corporations,
families, and even individuals with "clean" credentials have been able
to obtain licenses for banks and trust companies in the Caymans
without much difficulty. Unrestricted Class B licenses have a capital
requirement of about $500,000 with a 100% pay in requirement, though
portions may be guaranteed. It is possible, in some circumstances, to
obtain a restricted Class B license with less capital.
Class A licenses cost $50,400 per year, while Class B licenses a mere
$15,120. Setting up an offshore bank in Cayman should be possible
with $40,000 and $25,000 per year. Quarterly financial statements are
required and while annual financial statements must be audited, they
need not be published. Class B licenses are generally eligible for a
20 year guarantee against taxes. Restricted Class B licenses are also
available, but these can be hard to come by. Restricted licenses
limit the number of depositors, and the undertaking which the bank may
involve itself with. Usually a filing with the authorities is
required. As the cost of obtaining an unrestricted Class B license is
essentially the same, it is not usually worth the extra effort to
pursue a restricted license. Cayman banks of all flavors can be owned
by a single shareholder, and contracting with local banks to operate
facilities and lend personal are both permitted. Typically trust
companies charge between $15,000 and $25,000 per year for such
services.
[...]
Government fees are the most plaguing obstacle to the asset concealer.
If prices continue to increase, it may be beneficial to seek other
jurisdictions in which to conduct ones activities. Despite expense,
Cayman is still an excellent place to establish an offshore investment
company, a bank or financial institution, captive insurance company,
or offshore trust.
Why I Like Vanuatu
The pacific island nation of Vanuatu was at one time a condominium
administered by France and the UK. Currently, Vanuatu, formerly
called The New Hebrides, is a Republic with a multi-party democracy
and regular elections. Under the British, Vanuatu adopted many of the
aspects that today make it an interesting asset concealing
jurisdiction. Vanuatu has a balanced budget, a balance of payment
surplus, no or almost no public debt and low inflation.
The government has explicitly endorsed tax haven type policies and
even the opposition parties seem uninterested in rocking the boat.
Australia, however, has tightened regulations on her citizens who
transact with Vanuatu. Australian citizens must now file a "taxation
clearance certificate" with local authorities before conducting
business with Vanuatu. Taxation Administration Act, section 14C
(Australia) In practice, such certificates are virtually impossible
to obtain.
The great advantage of Vanuatu is the saturation of tax-haven
participants. Local financial, legal and accounting services have
been so successful and numerous, that a flurry of merger and
acquisition activity has resulted in the consolidation of several
entities. The result has been increased stability in these areas.
There is no registration requirement for trusts in Vanuatu, so there
is no official account of their number, though it can assumed to be
large as several large trust companies, some captives of major
worldwide trust companies or banks, work actively on the islands.
Offshore exempted (secret) companies number 650+.
Bearer Shares
Exempted companies in Vanuatu are "secret" and disclosure of financial
or ownership information is punishable by a fine of VT100,000 or
imprisonment of up to 12 months. (1VT=$0.009 at the time of this
writing). Companies Regulation 1971, section 416. While non-exempt
companies require public filings of ownership, in practice this is
often circumvented by trust ownership and registration in the names of
the nominees.
Warranted bearer shares can only be issued by non-exempt companies and
must be fully paid in. Companies Regulation 1971, sections 38(a), 93.
Perhaps most importantly there are no taxes what so ever on capital or
corporate profits. As a result there are no double taxation treaties,
and hence no provisions for information sharing whatsoever. The
obscurity of Vanuatu makes this one of the most impenetrable offshore
centers around.
Banking does not permit coded accounts, or accounts in pseudonyms,
although practically there are few if any checks on identity for
depositors. Local trust companies make these restrictions effectively
unimportant, as nominee services are readily available to assure more
potent account secrecy.
New companies can be very quickly set up in Vanuatu. Three working
days turn around time can be expected if an application is filled out
in detail and in advance. While off the shelf companies are not
"available," in practice abandoned, unwanted, unused, or idle
companies can often be purchased from local vendors.
Corporate forms in Vanuatu follow the Cayman Islands and Bahamas
models. The result is an excellent offshore style legal framework.
Companies in Vanuatu may be limited by shares, by guarantee, or
unlimited. They may be private, (if the articles impose: self
restricted transfer of shares, members number less than 50, and a
prohibition on public subscription for shares or debentures), or
public. For the asset concealer, the private company is the most
useful.
Exempted companies are not permitted to own shares in non-exempt
companies, own interest in any local undertaking, allow public
subscriptions to stock or debentures, or conduct any business with any
non-exempt company.
Any local judicial proceedings involving exempted companies in Vanuatu
will be held in camera, and public records of the proceedings will not
be recorded.
Technically speaking, a Vanuatu corporation is required to have issued
and paid two shares in the minimal amount of VT1/share. No formal
requirements as to shares is actually required and shares with no par
value at all may be issued by unlimited companies. Exempted companies
need only have one director and a separate secretary.
Private Banks
The real gem of Vanuatu, however, is the ease with which the asset
concealer may create a banking company.
Financial institutions in Vanuatu must be licensed and must have a
minimum paid in capital of VT12.5 million if the head office is in
Vanuatu, and VT50 million otherwise. There is an annual license fee
of VT300,000. Reserve fund and liquid asset minimum holdings are
enforced, and banks or financial institutions may also be exempted if
they conduct no local business except with related entities and
exempted financial institutions and banks are not subject to many of
the stricter regulations imposed on non-exempt entities. Unlike
almost any jurisdiction, financial institutions may be exempted. This
is a powerful tool for asset transfer, privacy and concealment.
Exempted banking entities are afforded a good deal of flexibility in
their minimum capital requirements subject to the approval of the
Registrar. There are no reserve or equity ratios imposed on exempt
banks. Most interestingly, local trust companies are in the habit of
providing all staff, local directors, attorneys, and required personal
for exempted banks. Some beneficial ownership and audit requirements
are in force, but exempted financial institutions and banks can expect
full confidentiality as a matter of course and lax enforcement.
Combined with the complete absence of currency controls, Vanuatu is
nearly the perfect jurisdiction for those asset concealers interested
in founding their own private financial institution.
[...]
See Generally, Vanuatu Companies Regulation 1971, Vanuatu Banking
Regulation 1970, Vanuatu Trust Companies Regulation 1971.
(Continued in Volumes II, III, and IV)
---
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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