From the perspective of the asset concealer it is worth noting that it is not only banks that can be fined for failure to disclose financial information. Accountants, clerks, corporations, or literally any fiduciary, are subject to significant fines and incarceration in the United States for failing to comply with court ordered discovery. Many of these "secondary" participants are targeted and, as often they have shallower pockets, are less able to bear the legal costs of defending against these powerful fines and, unlike banks, have less to lose in the way of reputation and client goodwill if they comply and disclose. Given the lower fines and the infrequency with which criminal penalties are imposed on professionals so compelled, it is often to the advantage of the foreign document or evidence holder to disclose and risk the ire of local authorities rather than the notoriously vigorous U.S. courts. Some U.S. courts have gone so far to indicate that banks unwilling to submit to the will of one or the other sovereign should "cease operation of the foreign branch." See e.g., First Nat'l City Bank v. IRS, 271 F.2d 616 (2d Cir. 1959); United States v. First Nat'l City Bank, 396 F.2d 897 (2d Cir. 1968). At least one court has not only acknowledged this dilemma, but wielded it as a policy measure, "...the defendant should feel the full measure of each sovereign's conflicting commands and so choose between laws of
Prologue: C'Punks: While direct crypto relevance is limited, I thought that this work might interest many on the list and so I decided to post it in any event. The sections on fourth and fifth amendment protections, or lack thereof, for banking documents might shed some light on the eventual disposition of crypto keys under the same circumstances. This text represents a sanitized and >heavily< modified version of scholarly work I recently published. I should also mention that portions of the original work have been subjected to official review prior to publication. For the purposes of posting to the list, and to conceal my identity, I changed the note to approach things from the perspective of the asset concealer. Although this wouldn't have gone over well when submitted for a scholarly publication, it better represents the way I think about these issues. Given the nature of the "legitimate" scholarly work that predates it and its subject matter, this note seemed the logical extension, and I found myself a bit carried away with it before I was done. In this regard the below is a more honest and complete picture of asset protection than the scholarly work, or probably than any other publication floating about right now. And it's just for you cypherpunks, for the moment. Unfortunately, after completing the work I began to realize that many sections were inappropriate for general release. As a result several source cites that survived review have been removed, but I have tried, where able, to keep the majority of the substantive material present. When I felt the need to remove substantive portions it was either to prevent exposing what I believe to be novel methods, because I consider the sections work product which I would like to continue utilizing effectively, or to protect those methods I know to be utilized by my associates. To prevent misunderstandings, where large portions (more than a few lines) or crucial elements have been removed, I have so indicated with empty brackets. ("[]" and "[...]"). I've segmented the note. I'll consider posting the second, third and forth volumes if there's enough interest. As they involve some of the more sensitive issues, I'm not sure yet if I'm willing to release them generally, with more deletions, or at all. If it gets to you garbled, mail me, I'll send you another copy. As always, this is an educational/academic work. The law is ever- changing and attempting to conduct international financial transactions without exacting professional advice is ill advised and extremely dangerous. I'm not being paid for services, so the reader uses this material at his or her own peril. I reserve all rights to this work. Please do not re-distribute it without permission. I intend to allow its semi-free circulation generally, but I must ask that forwarders request permission before reproducing it so that I may have an idea of where it is going. This is mostly for my personal edification. >Please do not< make it available via WWW, FTP, or other unrestricted distribution. If you insist on ignoring my wishes, may a thousand biting flies infest your pubic hair, but at least leave my e-mail address on it. ********** [...] Practical and Legal Problems Confronting the Asset Concealer in Relation to Offshore Financial and Corporate Entities: A View from the Perspective of the Individual Attempting to Avoid Extraterritorial Discovery, Attachment, or Coercion. [] (unicorn@schloss.li)* * LL.M.,[]; M.A.,[]; J.D.,[]; B.A.,[];. [] is an attorney licensed to practice in The District of Columbia, Switzerland, [], and also a former member of the intelligence community. ''''' I. Introduction II. Use of the Offshore Haven [] What to Look for in an Offshore Haven [] III. Legal Considerations for the Asset Concealer U.S. Discovery Compelled Consent Orders Local Illegality Foreign Offshore Jurisdictions Respond Discovery Blocking Judgment Blocking Are High Profile Offshore Centers to be Avoided? [] The Goals of the Asset Concealer and Selection of Jurisdiction Tax Cases Securities Issues [] The Constitution is of No Help. The Fourth Amendment The Fifth Amendment IV. Esoteric Considerations Intelligence Threats The Anatomy of a Money Laundering Investigation [] Private Banks Using Private Banks to your Advantage [] Bearer Shares V. Reviews of Specific Jurisdictions Why I Don't Like Switzerland Anymore The SBA Mutual Legal Assistance Treaties Why I Like Panama Why I Like Liechtenstein The Anstalt/The Treuunternehmen The Stifung/The Aktiengesellschaft Secrecy Why I Like (sort of) The Cayman Islands Private Banks [] Why I Like Vanuatu Bearer Shares [] Private Banks (Easy?) [] Why I Like Turks and Caicos Redomiciling Private Banks (The Easiest?) [] Why I Like Bermuda Why I Like (in a pinch) The Bahamas The Bahamas Corporation Private Banks The Local Authorities Why I Like Nauru Holding Corporations Private Banks Why I Like (sort of) The Virgin Islands Security Through Obscurity The Thatcher Appeal to Reagan Why I Like (in a pinch) Aruba Why Moving Money is Easy in Latvia Why Moving Money is Easier in Thailand Why Moving Money is Easiest in Estonia Arms Dealing and the Velocity of Money [] Liquidity and Ease of Exchange The Local Authorities Why I Send Casual Arms Dealers to Liberia [] Why I Send those with $10m+ to Seychelles Diplomatic Immunity [] Investment Incentives Reliability Why I Send Those with $15m+ to Monaco Conversion to Bearer Shares Shipping Investments Why I Send Dirty Money to Rumania Why I Send the Filthiest Clients to Bulgaria Fraud in the Bright of Day. The Local Authorities: A Case Study [] Why I Send Narcotics Money to Turkey Why I See Promise in Gibraltar VI. Conclusions Constructing Asset Concealing Organizations: Step by Step Forming the Holding Entity Forming the Direct Asset Holders [] Bearer Shares: Double Blinds Forming and Using Your Personal Financial Institution Moving the Money: Avoiding Currency Reporting [] The Re-investment Vehicle Warning Signs Pressing the Panic Button The Tools of the Trade and How to Use Them A Case Study I A Case Study II [] A Case Study IV The Future of International Asset Protection The Key to Success in Any Jurisdiction Secrecy or Expatriation? Final Thoughts VII. Appendix Detailed Analysis: Personal Financial Institution Formation in: The Cayman Islands Panama Luxembourg Jersey Bahrain [] Vanuatu The Bahamas [] [] Contacts: Professionals I Recommend to Asset Concealers [] Financial and Trust Institutions of Note [] ''''' I. Introduction While there has been much writing on "tax shelters," money laundering, and the use of the international business corporation to "judgment proof" assets, I've seen little discussion of the practical considerations in shielding assets effectively, especially for the United States resident. With all the seminars, and "insider's guides" to the various jurisdictions and their incentives, there exists a significant amount of disinformation floating about. I thought I would take the time to dispel some of the rumors and myths about asset protection and try to give a practical view that is sorely lacking in any of the common or scholarly literature on the subject. The following work will examine these issues in more detail. Part II will examine very briefly the uses of the offshore "tax haven." Part III will consider some of the legal aspects confronting the asset concealer. Part IV will examine some of the more esoteric issues and attacks on the asset concealer. Part V will take a closer look at some jurisdictions. Part VI will draw some conclusions, provide a step by step guide for constructing asset concealing organizations and make some predictions for the future. II. Use of the Offshore Haven Most people assume that the amount of the underground economy is fairly small and that offshore banking is entirely too complicated for the everyday person to deal with. This is patently false. Even as early as 1979 estimates of illegal money flowing through the Caribbean tax havens alone was in excess of fifty billion dollars a year. The Use of Offshore Tax Havens for the Purpose of Evading Income Taxes: Hearings Before the Subcommittee on Oversight of the House Committee on Ways and Means, 96th Cong., 1st Sess. 1 (1979). One estimate at the time attributed $25 billion a year to the Bahamas alone. Illegal Narcotics Profits: Hearings Before the Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs, 96th Cong., 1st Sess. 474 (1979) (Exhibit No. 33, Offshore Banking: Issues With Respect to Criminal Use, Submitted to the Ford Foundation, Nov. 1979, by Richard Blum and John Kaplan). In 1978, the Bahamas held $95.2 billion in foreign assets, a mere $1.8 billion of which was used to finance foreign trade. Douglas J. Workman, The Use of Offshore Tax Havens for the Purpose of Criminally Evading Income Taxes. Today the Cayman Islands have a population of 30,000, over 500 banks and some $415 billion of assets on deposit. All one must do to take advantage of an offshore tax haven is get the money offshore and design a vehicle to use it where you live. The techniques used to accomplish these goals are as varied as the creativity of the asset concealer. Even so, and while any treatment of this subject must almost by definition be incomplete, some of the more apparent aspects and methods are touched on below: A) Moving money offshore: Obviously, a cash producing business could easily stream funds overseas without much auditing liability. Follow this simple procedure: 1. Put cash in pocket. 2. Get on plane to offshore jurisdiction. 3. Deposit cash. 4. Return. Or in the case of non-cash businesses: American Business ("Biz") is owned by U.S. Citizens 1-3. Business "expenses" for Biz are paid to a foreign corporation ("For1"), and deducted from Biz's corporate taxes. While an audit might disclose these payments to the foreign corporation, it is fairly easy to shield them within the cost of goods sold. If pressed, it is easy for Biz to claim that For1 and Biz are unrelated, and produce canceled checks and/or receipts to effect such proof. For1 retains 10% of the payments from Biz, and passes the remainder to another foreign corporation ("For2"). An auditor will now have no direct access to records of the payments from For1 to For2, and indeed, the records may not even be in the country. Biz could also claim to be paying for services rendered under contract by For1, where in actuality said services are being performed by Biz and claimed by Biz as business expense deductions. [...] B) Bringing the money back. Assume For2 is owned by a foreign offshore trust ("Trust") the beneficiaries of which are citizens 1-3. Any investigation would be tasked to reveal the existence of this relationship or the flow of funds back to the citizens. While for technical purposes these funds are held offshore, their presence in a U.S. bank in the name of Trust is certainly possible. Wiser still, For2 could direct Trust to make a third foreign corporation ("For3") the 100% beneficiary, invest in U.S. securities through For3 (the capital gains of which are not technically taxable to foreign entities not connected to the United States). Repatriating the assets is a simple matter accomplished either by situating For3 in a jurisdiction with a treaty waiving the withholding tax on dividends and interest (in past this has been the Netherland Antilles) or by drawing directly on the foreign accounts of For3 in such a way so as not to draw undue attention. In past if Citizen 2 had some appreciated securities he would have sold them to Trust in return for an annuity with a carryover basis, or as an installment sale. Citizen 2 would recognize only the annuity gain on the transaction because the gain will be realized by the offshore entity. Obviously, the capital gain can be repatriated in the same way as above. Citizen 3 lives and spends a great deal of money in the United States, but is already the subject of several large judgments in the country. She instructs Trust to lease a new Ferrari, and obtain a secured Gold Mastercard in the trust's name from the bank administering Trust. Citizen 3 can enjoy the fast life, draw massive cash advances as well as purchase anything she likes without income accountability. Various complications can be included in any liberation/repatriation plan. Tainted funds can be exchanged for large denomination bank notes in varied currencies, the notes exchanged for bank checks, bearer credit, or bearer bonds/certificates of deposit, or any liquid monetary instrument easy to travel with. (Uncut diamonds, precious metals or securities are all quite popular). The goods are then transferred into another country and liquidated or stored. [...] While many of the legal loopholes have been filled with regard to the more public transactions, it becomes increasingly clear that asset concealing is an informational issue. The more difficult one makes it for investigators to discover assets, trace their movement, or to attribute any of these things to the depositor, the more effective the asset concealing endeavor will be. Asset concealing thus becomes a question of economics. How much can the prosecuting authorities spend, how much time do they have, and is there any degree of suspicion to begin with? What to Look for in an Offshore Haven [...] III. Legal Considerations for the Asset Concealer U.S. Discovery Compelled Consent Orders Many people believe that foreign and domestic banks, particularly those situated in jurisdictions that criminalize such disclosure, will never release depositor's account information, assets, or related documents. This too is patently false. In fact, the United States has gone to lengths to make it difficult for foreign banks and fiduciaries to withhold such items from U.S. litigants. Typically, heavy fines are imposed on banks refusing to comply with court orders compelling discovery of financial documents, even those located in foreign jurisdictions and where the disclosure imposes criminal and civil penalties on the disclosing bank. Fines of $2 million are not without precedent. (Unites States v. Bank of Nova Scotia, 740 F.2d 817, 832 (11th Cir. 1984), cert. denied, 469 U.S. 1106 (1985)(upholding $25,000/day fine totaling $1,750,000 for failing produce documents located in the Cayman Islands under grand jury subpoena duces tecum; Marc Rich & Co., A.G. v. United States, 707 F.2d 663, 670 (2d Cir.), cert. denied, 463 U.S. 1215 (1983)($50,000/day against Swiss corporation for noncompliance with subpoena duces tecum demanding documents located in Switzerland). It should be very apparent that U.S. courts are not shy about imposing potent sanctions, even upon third parties, in order to facilitate plaintiffs and prosecutors access to documents and evidence. On international discovery, See Generally, Note: Ordering Production of Documents from Abroad in Violation of Foreign Law, 31 U. Chi. L. Rev. 791 (1964); Note: Recent Developments in the Law Concerning the Foreign Illegality Excuse for Non-Production, 14 Va. J. Int'l L. 747 (1974); Note: Foreign Nondisclosure Laws and Domestic Discovery Orders in Antitrust Litigation, 88 Yale L.J. 612 (1979); Limitations on Concurrent Jurisdiction -- U.S. Court May Order Discovery of Foreign Documents, Notwithstanding Foreign Law, If Discovery Will Support National Policy, Is Vital to the Litigation, and May Be Accommodated by the Foreign Sovereign, 20 Va. J. Int'l L. 925 (1980); Rosdeitcher, Foreign Blocking Statutes and U.S. Discovery: A Conflict of National Policies, 16 N.Y.U. J. Int'l L. & Pol. 1061 (1984); Robinson, Compelling Discovery and Evidence in International Litigation, 18 Int'l Law. 533 (1984). Local Illegality This puts many banks in dire straits as local jurisdictions can in turn impose powerful sanctions for complying with court ordered discovery in the United States. See e.g., Bank and Trust Company Regulation Act of 1965, @ 10(3) (amended 1980)(Bahama Islands)(fine up to $ 15,000, prison term up to two years, or both); Art. 47, Bank G. (Switzerland)(fine up to $ 50,000 or prison term up to two years, fine to $ 30,000 for negligence); Montserrat Ordinance, No. 5 Section 5 (1980)(The Confidential Information Ordinance)(fine up to $ 5,000 and prison term up to two years for "nonprofessional person," fine up to $ 10,000 and prison term to four years for "professional person"); The Bank Secrecy Act, Art. 2 (Greece)(minimum of six months imprisonment with no possibility of suspended sentence, or imposition of fine). those two sovereigns." Westinghouse Elec. Corp. v. Rio Algom, Ltd., 480 F. Supp. 1138 (N.D. Ill. 1979). Generally speaking, there is little guidance for federal district courts, in which most of the litigation arises, as the only solid Supreme Court authority is Societe Internationale pour Participations Industrielles et Commerciales, 357 U.S. 197 (1958). Courts, while a bit shifting in their doctrine, have tended to apply a few common considerations. Factors indicating the United States interests at stake and the foreign entity's good faith attempts to comply with the court's order will both, almost without exception, be considered in reviewing the need for sanctions against foreign entities. See Generally, Mark Brodeur, Note: Court Ordered Violations of Foreign Bank Secrecy and Blocking Laws: Solving the Extraterritorial Dilemma, 1988 U. Ill. L. Rev. 563. What is concerning for the asset concealer is the meaning of the latter. Good faith attempts to comply with a U.S. court order do not typically include refusal, however apologetic, on the grounds of local illegality or violation of general privacy considerations of the fiduciary's client. In practice the balance between U.S. interests rarely, if ever, weighs in favor of the party resisting disclosure. United States v. Davis, 767 F.2d 1025 (2d Cir. 1985); Bank of Nova Scotia I, 691 F.2d 1256 (11th Cir. 1982); Bank of Nova Scotia II, 740 F.2d 817 (11th Cir. 1984); United States v. Vetco Inc., 644 F.2d 1324 (9th Cir. 1981); State of Ohio v. Arthur Andersen & Co., 570 F.2d 1370 (10th Cir. 1978); United States v. Field, 532 F.2d 404 (5th Cir. 1976); Garpeg Ltd. v. United States, 583 F. Supp. 789 (S.D.N.Y. 1984); Compagnie Francaise D'Assurance pour le Exterieur v. Phillips Petroleum Co., 105 F.R.D. 16 (S.D.N.Y. 1984); Banca Della Svizzera Italiana, 92 F.R.D. 111 (S.D.N.Y. 1981)(All resulting in findings of bad faith on the part of the custodial agent). Foreign Offshore Jurisdictions Respond Many foreign states have sought to eliminate the dilemma by enacting laws ("blocking statutes") re-enforcing banking secrecy. Blocking legislation usually takes two forms. Judgment blocking, which indicates that the enacting nation will simply not recognize certain foreign judgments, and discovery blocking, which prohibit disclosures for certain discovery requests. It is interesting to note that much of the disagreement surrounding the efficacy of judicially compelled extraterritorial disclosure seems to revolve around a basic difference in approach for foreign states and U.S. Courts. Mr. Brodeur, notes that foreign states usually find themselves concerned with the applicability of U.S. jurisdiction in their state and questions of sovereignty, where U.S. courts tend to feel that the "pertinent legal conflict" revolves around the general legitimacy of the compulsory disclosure orders themselves. While the perspective of the United States is understandable, foreign states have a point. Rare indeed is the U.S. court that bothers to assert jurisdiction based on the 'required' finding for extraterritorial extension of jurisdiction that the foreign entities activities have sufficient "effects" within its borders. Brodeur notes further that there is little precedent in international law for compelled discovery orders and that many states protest such orders consistently. See, International Law Association, Report of the Fifty-First Conference 407 (1964), documenting the protests of, e.g., Denmark, the United Kingdom, France, the Federal Republic of Germany, Italy, Japan, Norway, Sweden, Belgium, Greece, and the Netherlands. Most foreign states view their active resistance to U.S. policy as a preservation of their own sovereignty and policy. See, Rosenthal & Yale-Loehr, 16 N.Y.U. J. Int'l L. & Pol. 1075, 1080 (1984); Comment: Foreign Blocking Legislation: Recent Roadblocks to Effective Enforcement of American Antitrust Law, ARIZ. ST. L.J. 945 (1981). Given the above, the asset concealer will want to select an entity located in a jurisdiction with strict banking secrecy law and, ideally, one which has enacted legislation blocking compelled discovery. Such legislation will give the investor an idea of the local policy and posture vis-a-vis the United States and compelled discovery generally. Lists of such jurisdictions are somewhat difficult to come by but the generally accepted (if dated) authority on the subject is E. Chambost, Bank Accounts -- A World Guide to Confidentiality 93-259 (1983). Chambost lists comprehensive treatments of 44 countries that provided banking secrecy in 1983. More recent publications include Grundy's Tax Havens, Tolley's Tax havens, and the superior Practical International Tax Planning by Marshall Langer. This publication is updated quarterly and if a comparable alternative exists publicly, I am unaware of its existence. Among the more robust of the listed countries are Great Britain, South Africa, Australia, Germany, France, Italy, Denmark, Japan, Portugal, Sweden, Belgium, Spain, Finland, Mexico, Norway, the Netherlands, Andorra, Bahrain, Hong Kong, the British Virgin Islands, Guernsey, Luxembourg, Isle of Man, Russia, the Bahamas, the Cayman Islands, Hungary, Liechtenstein, Vanuatu, Panama, Singapore, Switzerland, Lebanon, Malaysia, Nauru, Austria, Costa Rica, Klienwalsertal, Jungholz, St. Vincent, the Turks and Caicos Islands. The surest and longest standing banking secrecy jurisdictions have historically been Austria, The Cayman Islands, The Bahamas, Switzerland, Costa Rica, El Salvador, Liechtenstein, and Panama. Unfortunately, with the growing EC/EU membership, Austria and Switzerland have begun to lean away from their strict banking secrecy and I personally find these jurisdictions to be a bit risky, especially given Switzerland's recent legislation and adoption of the latest round of banking reform treaties with the United States, which I will treat later. While the treaty is not in full release as of this writing I am able to disclose that it deals, among other things, in detail with Banking Secrecy compromises. Jurisdictions in which I found significant discovery blocking statutes include: The United Kingdom, Australia, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, New Zealand, Norway, the Philippines, South Africa, Sweden, and Switzerland. Jurisdictions with judgment blocking which I consider sufficient include the United Kingdom, Australia, Belgium, Canada, the Netherlands, the Philippines, and South Africa. The most powerful blocking statutes, (as in the United Kingdom) provide for the private recovery against the disclosing party of funds lost as a result of violation of the statute. The cautious asset concealer will seek such a jurisdiction. It is wise to keep in mind, however, that many jurisdictions do not have explicit blocking statutes on the books and yet are as secretive, or indeed, more secretive than those which do. Vanuatu is a good example of such a jurisdiction. Still other jurisdictions find their basis for banking secrecy in common law. Hong Kong: based on, Tournier v. National Provincial & Union Bank of England, 1 K.B. 461 (C.A. 1924); Anguilla, Antigua, Barbados, Bermuda, Montserrat, St. Vincent, the Turks and Caicos Islands, (Fedders, Waiver by Conduct -- A Possible Response to the Internationalization of the Securities Markets, 6 J. Comp. Bus. & Cap. Market L. 1, 30 (1984) are among these. The dedicated asset concealer will take note that discovery and judgment blocking statutes, unlike banking secrecy laws, are not waivable by banking customers. If placed in custody by local authorities to effect compliance, the depositor will be unable to effect his or her own release by instructing the foreign institution to surrender the requested documents or information. Almost all such blocking statutes require express governmental authority for disclosure. The hard core concealer will recognize, however, that many judges will be more sympathetic to the defendant who is unable to comply, even in good faith, and may refuse to impose incarceration for contempt as a result. While a factor, relying on the good graces of the judge overseeing a proceeding involving the magnitude of assets likely to be present is probably ill advised. Some jurisdictions refuse to acknowledge the instructions of asset holders held against their will. Others will refuse to acknowledge judicially compelled consent orders. (The Cayman Islands). Still others will refuse to release documents or funds unless the asset holder or fiduciary signs a form personally in the offshore jurisdiction (which does not have extradition treaties). An array of anti-duress, coercion and compulsion provisions are available from the more creative fiduciaries. For example, duress code words triggering the transfer of assets to a separate random jurisdiction at the trustee's discretion, or into the care of a unnamed third trustee. In the latter instance, the first trustee can plausibly deny any knowledge of the assets disposition. One arrangement I am fond of is illustrative of the range of options available to the innovative designer. Client A expects difficulties with local law enforcement. If Client A's attorney learns of his arrest or detention, he is instructed to call the trustee managing A's assets. The trustee, when notified, would collect the documents from his office, walk across the street and deposit the documents in a drop box at a neighboring trust company. The trustee would then phone the neighboring trust company and notify one of the managers of the document deposit. The manager of the neighboring trust company would select a nominee at random and instruct him to assume the duties entailed by the documents in the drop box. In this way, even if traced to the original trustee the assets are now managed and assumably have been transferred by an entirely different trustee who is unknown to the first. In the event A is released, he need only accompany the original trustee to the neighboring trust company to reclaim his assets. Those countries which have statutes that U.S. courts have recognized as criminalizing disclosures tend to represent the most stringent tested blocking law examples. These include Mexico, (Securities & Exch. Comm'n v. Minas de Artemisa, S.A., 150 F.2d 215, 218 (9th Cir. 1945) and Panama, In re Chase Manhattan Bank, 297 F.2d 611, 612-13 (2d Cir. 1962). After 1962, most courts refused to take judicial notice of the legality of disclosure in the foreign jurisdiction as it is currently considered irrelevant to the proceedings. While many of the statutes enacted to counter aggressive United States discovery practices are based on the increasing anti-trust litigation in the 1970's, anti-trust law is beyond the scope of this note. For a detailed treatment See e.g., I E. Nerep, Extraterritorial Control of Competition Under International Law 54-162 (1983). The most important distinction in the appellate cases which have denied motions to compel discovery of foreign documents in the face of the foreign states criminalization of such disclosure, e.g., Ings v. Ferguson, 282 F.2d 149 (2d Cir. 1960) First Nat'l City Bank v. IRS, 271 F.2d 616 (2d Cir. 1959) is that in both of these instances the entities holding the documents or discovery information were not themselves were not parties to the litigation. See, e.g., Ings at 152 (citing fact that custodian of records was not a party to the litigation as a prominent factor in its reasoning). The astute asset concealer will not use his concealing bank to, e.g., trade securities illegally, and thus involve the concealing bank in the litigation. Still, it should be noted that the existence of an agency relationship provides an easy out for courts determined to compel discovery and the easiest way to assure that ones concealing institution is not named in a suit is to conceal the identity of the institution in the first place. While jurisdictions which have active blocking statutes requiring governmental authority for a financial institution to release depositor information or documents are probably safest, courts at one time held that compelling a defendant depositor to actually instruct a bank to disclose his financial records violates his fifth amendment rights. See In re Grand Jury Proceedings, 814 F.2d 791 (1st Cir. 1987). Fifth amendment rights will be discussed more fully below. Generally speaking, the asset concealer should avoid relying on the fifth amendment absent extraordinary circumstances. For a full and detailed treatment of the fifth amendment non-applicability in cases involving judicially compelled document production, See Gordon Hwang, Note: Fisher v. United States: Compelled Waiver of Foreign Bank Secrecy and the Privilege Against Self-Incrimination, 56 Fordham L. Rev. 453 (1987)(Concluding that "the act of producing a consent directive... does not violate a witness' fifth amendment privilege against self-incrimination"). Are High Profile Offshore Centers to be Avoided? Further considerations for the U.S. asset concealer relate to the Cayman Islands and like jurisdictions. For some time American citizens traveling frequently to the Cayman Islands have experienced increased law enforcement and tax scrutiny. While I won't speculate as to the existence of a "black list," the glorious war on drugs has assured that The Cayman Islands and her visitors have, on occasion, attracted more law enforcement attention than the prudent asset concealer would want to endure. In addition, both the Bahamas and the Cayman Islands have signed Mutual Legal Assistance Treaties ("MLATS") with the United States. Though the Bahamian and Cayman MLATs both have important restrictions on information relating to tax matters, the Bahamian treaty, requires assistance in tax matters where the "offense" involves narcotics, theft, violence, or dual crimes. The Cayman MLAT excludes tax and currency offenses not relating to another criminal matter. [...] An excellent source for current high profile banking secrecy jurisdictions can be the periodic study by the Subcommittee on Investigations of the Senate Committee on Governmental Affairs, "Use of Offshore Banks and Companies." The Goals of the Asset Concealer and Selection of Jurisdiction Tax Cases The reason for secrecy is terribly important in deciding jurisdiction. Of course, most litigation on the subject is with reference to taxation actions. Jurisdictions with favorable laws for the "tax problem" depositor have traditionally included Switzerland, the Bahamas, the Cayman Islands, Bahrain, and Hong Kong. See Generally Crinion, Information Gathering on Tax Evasion in Tax Haven Countries, 20 Int'l Law. 1209 (1986)(analysis of law and practice of obtaining evidence from abroad in IRS investigations). Switzerland, however, has leaned away from providing shelter to U.S. depositors accused of tax evasion. While in practice Switzerland has been reluctant to disclose the information of depositors engaged in tax litigation with the United States and other nations, pressure from the U.S. has moved Switzerland, grudgingly, to comply in many of these cases. Banking secrecy in Switzerland remains more stringent in other areas, but her deference to the United States is disturbing. Securities Issues Securities litigation is probably the next most frequent category of case involving international discovery and the compelled discovery of documents. Blocking and secrecy laws of those countries with robust legislation will protect the asset concealer concerned with this area. Many countries which have signed agreements with the United States, notorious for its excessively energetic securities regulation, still have found ways to avoid complete compliance through treaty loopholes. Of particular note, with my previously expressed reservations about newly emerging agreements, is the Swiss accord, The United States- Swiss Treaty on Mutual Assistance in Criminal Matters 27 U.S.T. 2019, T.I.A.S. No. 8302 (1977) which is fairly typical of such agreements. Because the Swiss agreement requires that the alleged acts which are the subject of the litigation spurring discovery be illegal in Switzerland as well as the prosecuting nation, and because some U.S. and other securities violations do not expressly "contravene" Swiss law, the Swiss treaty is, in extremely limited circumstances, an open tunnel for non-disclosure. See Generally, Brodeur supra. Offshore entities are particularly useful in active trading for the asset concealer anticipating securities regulation problems. Problems with the SEC's Enforcement of U.S. Securities Laws in Cases Involving Suspicious Trades Originating from Abroad, H.R. Rep. No. 1065, 100th Cong., 2d Sess. 2-6 (1988). The sheer volume of international trading on the large U.S. markets provides an excellent opportunity for securities traders to become a "drop in the bucket." Reported purchases of stock in the United States by foreign entities were $41.8 billion as early as 1982. Swiss banks alone may account for as much as 20% of the trading volume on the New York Stock Exchange. Siegel, United States Insider Trading Prohibition in Conflict with Swiss Bank Secrecy, 4 J. Comp. Corp. L. & Sec. Reg. 353, 357 (1983). Because the enforcement of securities laws within the United States has been so dependent on disclosure and the open identity of the traders, many have used this "weak link" to avoid unwanted attention by trading from anonymous or nearly anonymous accounts abroad. [...] Some jurisdictions continue to provide a measure of safety against outside investigation of fraudulent and illicit trading through blocking and privacy statutes, Liechtenstein, Monaco, Luxembourg, and the Cayman Islands are the best examples. See Generally, Rochelle G. Kauffman, Note, Secrecy and Blocking Laws: A Growing Problem as the Internationalization of Securities Markets Continues, 18 Vand. J. Transnat'l L. 809, 819-26 (1985)(discussing countries with blocking statutes and the effect of these laws on the SEC); Yvonne G. Grassie, Recent Development, Foreign Bank Secrecy and Disclosure Blocking Laws as a Barrier to SEC Policing of Transnational Securities Fraud, 65 Wash. U. L.Q. 259 (1987)(discussing judicial and administrative efforts to deal with blocking statutes). Occasionally, where suspicious trading originates from a country such as Panama, Luxembourg, or Liechtenstein with blocking or secrecy statutes and no bilateral agreements with the United States, the SEC takes no investigative action. See Grassie. at 11 (statement of Mr. Mountjoy). Where a bilateral agreement exists, the Commission is often reluctant to invoke less it "wear out its welcome" with the host country. Id. at 12-13 (investigation into suspicious trading through Swiss banks in which conclusive indications that U.S. securities laws had been violated existed still resulted in no request information to the Swiss authorities). Identifying foreign owners can be virtually impossible when ownership must be traced through bearer shares, such as those issued by Liechtenstein Anstalts, or when ownership is held through accounts in jurisdictions with iron clad bank secrecy laws. See, e.g., Ingo Walter, The Secret Money Market 185-237 (1990) (emphasizing use of secrecy jurisdictions as means of avoiding detection and enforcement); Marc C. Corrado, Comment, The Supreme Court's Impact on Swiss Banking Secrecy: Societe Nationale Industrielle Aerospatialle v. United States District Court, 37 Am. U. L. Rev. 827, 829-31 (1988)(reviewing Swiss domestic policy rationales for bank secrecy); Michael Getler, Europe's Ultimate Tax Haven, Wash. Post, Jan. 15, 1978, at H5; Liechtenstein; Coming Clean, The Economist, Apr. 26, 1980, at 59; Steve Lohr, Where the Money Washes Up, N.Y. Times, Mar. 29, 1992, at 27 (Magazine); John Wicks, A Tax Haven Where Companies Outnumber the Population, Fin. Times, Aug. 24, 1984, at 8. To deal with the challenges posed by foreign ownership and trading, the U.S. Securities and Exchange Commission has negotiated an intricate web of treaties and memoranda of understanding. See, e.g., Richard M. Phillips & Gilbert C. Miller, The Internationalization of Securities Fraud Enforcement in the 1990s, 25 Rev. Sec. & Commodities Reg. 119 (1992). Switzerland now often conditions permission to trade on U.S. securities markets with a waiver of secrecy. [...] (End of Segment 1 of Volume I) --- My preferred and soon to be permanent e-mail address:unicorn@schloss.li "In fact, had Bancroft not existed, potestas scientiae in usu est Franklin might have had to invent him." in nihilum nil posse reverti 00B9289C28DC0E55 E16D5378B81E1C96 - Finger for Current Key Information