Note: Problems Confronting the Asset Concealer [Part 2 of 2 of Volume I]

(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 00B9289C28DC0E55 E16D5378B81E1C96 - Finger for Current Key Information