Tag Archives: offshore finance

How and Where to Get a Secret Account in the USA

South Dakota, quarter---2006, image from wikipedia

After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nevada a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.  Others are also jumping in: Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.  Trident Trust Co., one of the world’s biggest providers of offshore trusts, moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline….

No one expects offshore havens to disappear anytime soon. Swiss banks still hold about $1.9 trillion in assets not reported by account holders in their home countries, … Still, the U.S. is one of the few places left where advisers are actively promoting accounts that will remain secret from overseas authorities….The offices of Rothschild Trust North America LLC aren’t easy to find. They’re on the 12th floor of Porsche’s former North American headquarters building, a few blocks from the casinos. (The U.S. attorney’s office is on the sixth floor.) Yet the lobby directory does not list Rothschild. Instead, visitors must go to the 10th floor, the offices of McDonald Carano Wilson LLP, a politically connected law firm. Several former high-ranking Nevada state officials work there, as well as the owner of some of Reno’s biggest casinos and numerous registered lobbyists. One of the firm’s tax lobbyists is Robert Armstrong, viewed as the state’s top trusts and estates attorney, and a manager of Rothschild Trust North America.

“There’s a lot of people that are going to do it,” said Cripps. “This added layer of privacy is kicking them over the hurdle” to move their assets into the U.S. For wealthy overseas clients, “privacy is huge, especially in countries where there is corruption.”….

Rothschild’s Penney wrote that the U.S. “is effectively the biggest tax haven in the world.” The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”….The U.S. failure to sign onto the OECD information-sharing standard is “proving to be a strong driver of growth for our business,” …

In a section originally titled “U.S. Trusts to Preserve Privacy,” he included the hypothetical example of an Internet investor named “Wang, a Hong Kong resident,” originally from the People’s Republic of China, concerned that information about his wealth could be shared with Chinese authorities.  Putting his assets into a Nevada LLC, in turn owned by a Nevada trust, would generate no U.S. tax returns, Penney wrote. Any forms the IRS would receive would result in “no meaningful information to exchange under” agreements between Hong Kong and the U.S., according to Penney’s PowerPoint presentation reviewed by Bloomberg.
Penney offered a disclaimer: At least one government, the U.K., intends to make it a criminal offense for any U.K. firm to facilitate tax evasion.

Excerpt from Jesse Drucker, The World’s Favorite New Tax Haven Is the United States, Bloombert, Jan. 27, 2016

From Switzerland: Stolen Money Trickles back to Nigeria

sani abacha. image from wikipedia

Geneva’s public prosecutor will send $380 million confiscated from the family of Nigeria’s former military ruler Sani Abacha to Nigeria and closed a 16-year investigation into his funds, the prosecutor’s office said.   Abacha stole as much as $5 billion of public money during his five years running Africa’s top oil producing country from 1993 until his death in 1998, according to the corruption watchdog Transparency International.

The return of the $380 million follows an agreement between Nigeria and the Abacha family in July 2014, the prosecutor’s statement said. The agreement provides for Nigeria to receive the frozen funds in return for dropping a complaint against Abba Abacha, Sani’s son.He was charged by a Swiss court with money-laundering, fraud and forgery in April 2005, after being extradited from Germany, and subsequently spent 561 days in custody. In 2006 Switzerland ordered funds held by him in Luxembourg to be confiscated.  The return of the funds is conditional on effective monitoring by the World Bank of how the funds are used.

Switzerland to return $380 million of Abacha’s loot to Nigeria, Reuters, Mar. 19, 2015

Why Chinese Banks Love the United Kingdom

Yuan. Image from wikipedia

Britain’s banks, heirs to empire, have long coveted the riches of China. On October 15, 2013 their hopes of reaping them rose greatly when the chancellor of the exchequer, George Osborne, announced a deal with China that is intended to make Britain the main offshore hub for trading in China’s currency and bonds and for foreign institutions investing in China’s fast-growing economy.But there was a price. Mr Osborne conceded that British regulators would “consider” (which tends to mean “approve”) applications from Chinese banks wanting to enter Britain as branches of their parent banks rather than as subsidiaries. The difference may seem arcane but in the world of banking regulation it is hugely important. Branches are overseen by their parents’ bank supervisors at home. They are not required to have thick cushions of capital to absorb losses or large chunks of cash to see them through hard times. Instead they are expected to call on their parents for help if they run into difficulties. This makes branches much cheaper and more attractive for banks than subsidiaries.

It also explains why regulators generally dislike them. The laxer rules on branches leave them more vulnerable if they or their parent banks get into difficulties. In allowing Chinese banks to use branches, British authorities are in effect betting that if anything goes wrong the Chinese government will bail them out, says Simon Gleeson of Clifford Chance, a law firm.

The chancellor’s decision has raised eyebrows in London’s financial district. Some worry that a supposedly independent regulator has been subjected to political interference and has been forced to lower its standards. Yet critics of the deal overlook two important points. The first is that there is an inevitable tension between a bank regulator’s mission of maintaining financial stability and the wider aim of promoting economic growth. Tension between a regulator and elected officials is not just inevitable but healthy.

Just as important is the tricky balance regulators must find between protecting their own banking systems and encouraging the smooth functioning of global capital markets. Letting banks use branches allows capital to flow more easily around the world. Forcing them into subsidiaries can lead to the creation of stagnant pools of cash and capital.  Although Britain has cast a more sceptical eye over branches of foreign banks since the crisis—particularly after its taxpayers were left out of pocket by the collapse of Icelandic banks and their British branches—it has generally stood on the side of financial globalisation. In this it is increasingly lonely. American regulators are likely soon to force foreign banks to establish fully-capitalised units. EU officials are threatening to do the same. Given this trend, Britain’s stance looks less like an opportunistic grab for Chinese business and more like a last, probably hopeless, stab at keeping alive the dream of a seamless global financial market.

Chinese banks: Open for business, Economist, Oct. 19, 2013, at 62

Tax Evaders and Whistleblowers

HSBC Private Bank n London, image from wikipedia

What  Edward Snowden is to mass surveillance, Hervé Falciani is becoming to private banking. In 2008 the now 41-year-old native of Monaco walked out of the Geneva branch of HSBC, where he had worked for three years, clutching five CD-ROMs containing data on thousands of account holders. The theft lobbed a bomb into Europe’s private-banking market, spawning raids and tax-evasion investigations continentwide. In the latest, this week, Belgian agents swooped on the homes of 20 HSBC clients, including some with ties to Antwerp diamond dealers.

Mr Falciani went on the run when the Swiss charged him with data theft. After moving to Spain he was imprisoned, but freed when a judge denied a Swiss extradition request. At one point, he claims, he was kidnapped by Mossad agents who wanted a peek at the clients’ names. He has now taken refuge in France, where the government has offered him protection in return for helping it hunt for tax dodgers.

Several countries have used the data to bring cases against suspected evaders. Revelations that dozens of Greek public figures hid money offshore have magnified the tumult in that country’s politics. Spain and France have fingered hundreds of high-level cheats and retrieved €350m ($610m) in back taxes. Mr Falciani maintains that his CDs provided support for an American probe into weak money-laundering controls at HSBC, which led to a $1.9 billion settlement. HSBC disputes this.

Mr Falciani has said he still fears for his safety, despite round-the-clock protection from three armed guards provided by the French. At least he is not short of work. He has been helping France’s tax authorities develop long-term anti-tax-evasion measures. And he recently became an adviser to a new Spanish political party, Partido X (which, ironically, tries to keep its members anonymous).

He insists his motives have always been pure: to repel Switzerland’s “attack” on other countries’ tax laws and exchequers. HSBC says he is no high-minded whistle-blower. He tried to sell the data at first, the bank contends, and started to work with prosecutors only when he was jailed in Spain. It claims he has data on only 15,000 clients (Mr Falciani says it is eight times that) and that the stolen files contain errors.

Either way, many more tax-shy Europeans have reason to sleep fitfully. Other countries are said to want a look at the data, some of which are yet to be decrypted. When Mr Falciani first made the rounds with his discs, there was little interest. The fiscal strains produced by the euro crisis have changed all that.

Banks and tax evasion: Hervé lifting, Economist, Oct. 19, 2013, at 79

Offshore Tax Evasion: US versus Switzerland

switzerland tax haven

Fearful that other banks could suffer the same fate as Wegelin, a venerable private bank that was indicted in New York in 2012 and put out of business, the Swiss government has been seeking an agreement with America that would allow the industry to pay its way out of trouble in one go. Instead, it has had to make do with one covering banks that are not already under investigation, which excludes some of the country’s biggest institutions.

The deal is cleverly structured. Of Switzerland’s 300 banks, 285 will be able to avoid prosecution if they provide certain information about American clients and their advisers, and pay penalties of 20-50% of the clients’ undeclared account balances, depending on when the account was opened and other factors. Banks that persuade clients to make disclosures before the programme starts will get reduced fines. Banks will not have to take part but the legal risks are daunting for those that don’t, even if they hold little undeclared American money. Those with no foreign clients will have to produce independent reports proving they have nothing to hide if they want a clean bill of health.

One Swiss newspaper likened the deal to “swallowing toads”. Another called it “the start of an organised surrender”. The bankers’ association sees it as a necessary evil: the only way to end legal uncertainty, albeit at a cost that will strain some institutions. Small and medium-sized Swiss private banks are already struggling. In 2012 their average return on equity was 3%; the number of private banks fell by 13, to 148, mostly because of voluntary liquidations. KPMG, a consultancy, expects this to fall by a further 25-30% by 2016 as receding legal threats encourage the return of mergers.

Some of the prospective buyers in any future M&A wave still have to make their peace with the Americans. Excluded from the deal are 14 mostly large banks that have been under investigation for some time, including Credit Suisse and Julius Bär. They will have to settle individually, with fines expected to be steep, some perhaps comparable to the $780m paid by UBS in 2009. These banks are also under pressure from European countries that have suffered tax leakage, including Germany, whose parliament has rejected a deal that would have allowed the Swiss to make regular payments of tax withheld from clients while avoiding having to name names.

Swiss bankers gamely argue that bank secrecy remains intact, pointing out that privacy laws have not been dismantled. But banks are being bullied into providing enough information, short of actual client names, to allow the Americans to make robust “mutual legal assistance” requests that leave Swiss courts with no option but to order banks to provide clients’ personal details. The courts still have some flexibility because America has yet to ratify an amended tax treaty with Switzerland, thanks to blocking tactics by Rand Paul, a senator who argues it would violate Americans’ right to privacy. But this obstacle will eventually be cleared or circumvented.

All of which fuels speculation that Switzerland could lose its crown as the leading offshore financial centre, even though it is still well ahead of fast-growing rivals in Asia. It may find comfort in the fact that the Americans plan to use information harvested from the Swiss— including “leaver lists”, which contain data on account closures and transfers to banks abroad—to go after other jurisdictions. This is part of a “domino effect” strategy, says Jeffrey Neiman, a former federal prosecutor, aimed at forcing tax evaders “so far off the beaten path that they can’t be sure if the pirate waiting to take their money will be there when they return.”

Offshore tax evasion: Swiss finished?, Economist, Sept. 7, 2013, at 72

Offshore Havens: who is the next largest mass incorporator

Gambia_Export_Treemap. Image from wikipedia

After Guernsey, the Gambia? The smallest country in mainland Africa, a sliver on the west coast with a population of 1.8m, is trying to turn itself into an offshore financial centre. Central to the strategy is a state-of-the-art online corporate registry, offering quick and cheap incorporation of the types of secretive companies and trusts that drive financial investigators to distraction.

It is a counter-intuitive move at a time when offshore hubs are under fire from big economies that accuse them of aiding tax evasion or worse. But the idea of becoming a tax haven “will always loom large” for small states with few other options for economic development, says Jason Sharman of Griffith University in Australia. The Gambia’s economy is fairly open but still heavily dependent on tourism and peanuts.

With Britain cranking up pressure on its dependencies in the Caribbean and the English Channel, some of their customers will seek new homes offshore. And the overall market is proving resilient: after dipping in 2007-08, demand for offshore vehicles is back near pre-crisis levels in many jurisdictions, according to Appleby, a law firm.

The Gambia is not the only African country to take an interest. An attempt led by Barclays to develop Ghana into an offshore banking hub foundered in 2011 when the government, spooked by a warning from the OECD, declined to pass the required regulations. Tiny Anjouan, an island in the Indian Ocean, dabbled briefly with shell banks. Kenya is working with TheCityUK, which helps London’s financial district forge alliances, to set up an “International Financial Centre” (offshore centres’ preferred label for their activities) in Nairobi. TheCityUK is also in talks with Dubai, Istanbul and Moscow. Liberia is a successful shipping flag of convenience, although its registry is run from Virginia.

The Gambian registry already has “several hundred” companies, says Charlotte Pawar, a manager. But it will need many thousands to be considered a success, a tall order in a bitterly competitive market. Although it is easy to copy other places’ laws and product offerings (the Gambia’s resemble those of Mauritius), gaining traction is a struggle without the right network of tax treaties and the backing of the big corporate-service providers that buy offshore firms in bulk from favoured jurisdictions, for resale to law firms and individuals.

These sponsors are hard to impress. Only four of the many jurisdictions that have tried to enter the market since the late 1980s have proved really successful: Mauritius, the Seychelles, Belize and Samoa. The largest mass incorporator, Hong Kong-based Offshore Incorporations Limited, apparently has no plans to start selling Gambian vehicles. It could be a while before financial shells displace those around the country’s peanuts as a source of economic value

Offshore finance: Trawling for business, Economist, Aug. 24, at 65

Geological Scandal: Guinea and the UK Offshore Guernsey

Iron_Ore_Pellets

As he lay on his death bed in 2008, the former president of Guinea Lansana Conté agreed to hand over a licence worth billions of pounds to mine a share of Simandou, one of the world’s richest undeveloped mineral deposits.  The rights to extract half of the iron ore at Simandou, situated in a mountainous region of Guinea’s south-east, were unceremoniously stripped from Rio Tinto, and awarded to BSG Resources, a mining company based in the offshore haven of Guernsey, a British Crown dependency, whose owner (through a family trust) is Israeli diamond magnate Beny Steinmetz.  Having pledged to invest just $165m to develop a mine at Simandou to secure the rights, BSGR sold a 51 per cent stake in it to Brazilian company Vale for $2.5bn, according to Forbes.BSGR had pulled off the deal of the century, in one observer’s words.

In January this year, the FBI began to investigate the deal. Wire-tapping and a sting led to allegations that Mamadie Touré, Mr Conté’s wife, had received payments into US-held bank accounts, from Frederic Cilins, an agent for BSGR in Guinea.FBI agents also allegedly found that the Frenchman, Mr Cilins, had put pressure on Touré to destroy evidence showing that the rights to the Simandou mine had been won after millions of dollars were paid in bribes to Guinea government officials. Touré is now co-operating with the investigation in the hope of obtaining immunity for her own potential criminal conduct, according to a criminal complaint filed in federal court in New York in April.

In May, after Mr Cilins was charged with obstructing the federal grand jury investigation, BSGR released a statement acknowledging that it had once had a business relationship with the Frenchman, but adding: “Allegations that there was anything improper about the manner in which BSGR obtained its mining rights in Guinea are entirely baseless and motivated by a campaign to seize the assets of BSGR.”

Alpha Condé, the current President of Guinea, who came to power in 2010 after half a century in opposition, now wants the Simandou licence back in Guinea. He hopes the US criminal case will help his effort to retrieve it.“I have to wait for the findings of investigations by both the US judicial system and the Guinea system, before I can act or have an informed opinion,” President Condé told The Independent. “The evidence suggests there is a strong case. The US [is] saying that the evidence of corruption is strong.”  President Condé, who is attending the G8 summit as a guest of David Cameron, argues that the British authorities have a role to play in raising the pressure on Mr Steinmetz to return the licence. Transactions went through the UK as well as US banking systems, and he is understood to be pushing for the Serious Fraud Office to start an investigation. Mr Condé – who is being advised by Tony Blair and George Soros on how to curb corruption, build the country’s economy, and enact a “national transformation” – believes that the Simandou scandal has its roots in Western countries, and they must play a key role in holding guilty parties to account.  “Cooperation from the US has already brought a lot of evidence forward,” said Mr Condé. “But England is central because a lot of the transactions will be initiated there. So getting the UK government to provide us with information will accelerate the current investigation.”  Mr Condé says greater exchange of information about offshore assets and companies between Western and African countries will boost the fight against Guinean corruption.  “We are trying to address a problem that has its source in Western countries,” Mr Condé says. “We need to deal with places where the problem arises. Most of the countries involved in the corruption in Guinea and more widely in Africa are of Western origin so the West has to be part of the solution. It is not that we are relying on Western countries to solve our problem, it is that we want Western countries to be part of the solution.”  Offshore companies need to be better monitored and controlled, he says. “We don’t have the technology to identify the problems but this is the very way that corruption is perpetrated….

In 2010, Mr Condé, who is 75, was declared winner of Guinea’s first democratic election since the country gained independence from France in 1958, taking over from a military junta which had seized power in 2008 after Mr Conté’s death. Having endured jail time and exile during his years in opposition, supporters of his Rally of Guinean People party saw the win as a triumph, but in less than a year he faced a coup from which he narrowly escaped with his life.

Critics have claimed Mr Condé has attempted to rig subsequent elections, including a legislative election which had been scheduled for 30 June, but was postponed. Elements of the military deeply opposed to Mr Condé are said to be fomenting unrest in the capital of Conakry – fuelled by deep ethnic divisions. More than 50 people have been killed during protests in the past three months.  “The President wants these elections to be credible, so he has a problem if the opposition behave in this way,” says Scott Horton, a legal adviser to the Government of Guinea.

Fundamentalist Islamic groups have also been infiltrating Guinea from neighbouring Mali, where French forces intervened to combat such groups in January. Organised gangs, arms traders and drug dealers have fed on the country’s instability…Meanwhile, Mr Condé continues to drive the project to begin iron ore production at the part of the Simandou mine Rio Tinto retained. Despite scepticism from many analysts, he insists the $20bn project will begin in 2015.

The corruption deal of the century: How Guinea lost billions of pounds in Simandou mining licensing, The Independent, June 18, 2013