I have always had a considerable problem with the concept of trusts, even as a practicing tax accountant. But I have much more of a problem with Jersey's new trust laws passed in May 2006 which allow the creation of ‘sham' trusts where there is in fact no such thing, but just the bogus impression of one. I have even more difficulty with this because I have no doubt that Jersey knew the new laws would facilitate tax evasion. Indeed, it is hard to see what other purpose they could have.
Let me deal with the concept first though. Trusts are an instrument normally only available in Anglo Saxon common law. Wikipedia describes a trust as:
“a relationship in which a person or entity (the trustee) holds legal title to certain property (the trust property) but is bound by a fiduciary duty to exercise that legal control for the benefit of one or more individuals or organizations (the beneficiary), who hold "beneficial" or "equitable" title”
I have simplified this slightly for clarity, but that is a fair description. To put it another way, one person says to a second “please look after this asset for me, but when doing so make sure (for example) that the income goes to this third person during their life and when they die the remaining property goes to another, fourth person”. All trusts are meant to incorporate this split of roles, responsibilities and entitlements. If they did not then there would be no need for a trust. The property would be owned absolutely by one person for their own benefit.
Why is this important? There are two reasons. First of all trusts are not registered. Unlike companies or partnerships which are either legal entities, or which if trade have to disclose their identity, if not their accounts, there is no requirement anywhere that I know of for a trust to be registered even though it is an artificial arrangement that exists only under the rule of statute law, even if the concept started in common law. So trusts are used to assist secrecy on and offshore, and especially in the latter case where nominee trustees act as trustees to hold nominee shares in companies managed by nominee directors etc., etc. As the Swiss rightly point out this means that the UK and its offshore dependencies do not need banking secrecy to achieve the benefit for clients they had to introduce banking secrecy for, Anglo Saxon common law countries achieve it through trusts. This secrecy is almost without exception harmful.
Second, and as importantly, the role of trusts in tax planning is dubious at best. Unfortunately the UK has encouraged this. For example when the EU Savings Tax Directive was introduced the entities for whom disclosure of information would have to be made did, in the opinion of the EC, include trusts. But the UK objected, saying trusts were not entities and so helped massively reduce the effectiveness of the Directive. It was not one of the UK's prouder moments.
Now I come to my main point. Because the use of a trust can prevent disclosure of offshore interest earned under the terms of the EU Savings Tax Directive to a person's home country of residence those seeking to avoid such disclosure have poured their cash into them. My recent research on funds held in Jersey proves this point. And, as a matter of fact the trust market in Jersey has boomed, up by 30%, for example, in 2004 according to Phil Austin, CEO of Jersey Finance. The reason is simple. There are a great many people who have money on which tax has been evaded in Jersey and elsewhere and who do not want the interest declared to their home state as that would lead to questioning on where the money on which the interest was paid came from as well as to questions about the interest itself. Using a trust prevents such questions arising and perpetuates the tax evasion.
But note what a trust is. It is something where the settlor gives the property away. This imposes a cost on the settlor. But now look at what Jersey's doing with its new trust law. These are explained by the Jersey firm of Volaw Trust & Corporate Services Limited. Jersey will now allow the creation of what can only be called ‘sham trusts', although they're calling them trusts with ‘reserved powers for the settlor'. What are those reserved powers? Well, the settlor can tell the trustee what to do, which means the trustee only has a nominee role. And the settlor can claim the property back, which means that no gift of assets into trust has taken place since they clearly remain in the ownership of the settlor in that case. And, because they can be claimed back the settlor is always likely to be the beneficiary of such a trust. In other words, the settlor continues to have complete beneficial ownership of the asset and there is in fact no trust in existence at all, just a sham that suggests that there is.
In that case what is Jersey actually doing by passing this law? It is creating a situation where a person can claim they have put an asset into trust but the reality is they have done no such thing. This is a completely bogus transaction. And why would Jersey want to do this now? I have no doubt that a primary reason is to assist people who wish to avoid declaring their income under the EU Savings Tax Directive or suffer tax withholding at source, which is the alternative. Indeed, at a meeting I attended recently some very senior people in the financial services industry complained about the effort they have had to put into the process of creating such arrangements to assist those clients who had evaded funds offshore and who do not wish them to be disclosed now even though (as I suggested to them) they are assisting money laundering by doing so. These new trusts assist that objective and shoot a massive hole through Jersey's claim to only want legitimate business in the Island.
There is only one purpose for this new law. It is to promote secrecy, and the prime use for that is to assist tax evasion.
This legislation proves that the mentality of promoting aggressive tax avoidance and even of providing shelter for outright tax evasion persists in Jersey, and is, regrettably, assisted by its government, which passes legislation of this type that facilitates such arrangements.
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It is obvious that the operators of this blog are establishment figures, unwilling to look at the reasons why the apparent injustice of tax evasion has come about.
As Roosvelt was wont to say “Nothing happens by accident”.
The very notion of “Tax havens” has come about due to the abandonment of exchange controls. For the solution to the perc ieved problem is for each administration to take steps to prevent the free wheeling of funds about the world.
End of problem.
As it is, certain administrations are being exoploited because they have a historic system that does not require high levels of taxation. For they have stuck to the origional function of taxation, that is the funding of public services. These admistration do not borrow, so therefor have no debt to repay.
The attack upon the antient practices of the States, of Jersey and Guernesy in particular, is made without any understanding of the long history involved. This was obvious from the makeup and “findings ” of the Edwards report onwards. This is not to say that the the present Jersey authorities are not beyond a bit of manipulation itself. The historic record of democratic involvement is nothing to be proud of 🙁
Failure to look beyond “what is” condemms us to fail to repair a universal debt system that enslaves us all.
Ken Palmerton
(Jersey born and bred).
Dear Ken
If you know Jersey then you’ll know I’m no friend of its establishment. At least, that seems to be their view.
And I certainly agree that exchange liberalisation was a major factor in the development of tax havens, but it is far from a total explanation.
As for Jersey’s history – let’s not forget it 20% tax rate is not a consequence of any sound fisvcal planning; it’s what the Nazis bequeathed to it and no one has had the courgae to change it, whether appropriate or not.
Richard
[…] That leads to the obvious, and wholly tenable conclusion that tax is a major reason for creating trusts onshore and offshore. Onshore its a transparent motive: offshore the effect is achieved by the type of sham trusts that Jersey deliberately promotes and which are intended to be a blatant nominee mechanism for those who claim they have gifted assets into trust and who actually wish to retain full control of them. This action is, like so many of the practices promoted offshore, fraudulent of course. […]
[…] Such was his reaction that we decided in the interests of supporting our friends in Jersey, who are somewhat upset by his actions, that we’d have to tell this simple truth instead. But then, perhaps it’s time we did, because his position is getting rather hard to support. It is, frankly, becoming difficult to see how he can claim to be opposed to everything Jersey stands for and then serve in the government that is dominated by those who created sham trust laws (which he did not oppose) and that clearly permit tax evasion or that introduces the 0/10 tax laws with no idea how they will be funded without his accepting some responsibility for the consequences. […]
[…] Lawyers will know when they’re breaking the law. They’ll know exactly what they’re doing. What they’re worried about is that they might not be able to break the law (sorry – but see what lawyers do in Jersey with regard to running sham trusts, and in the Isle of Man as reported by the US Senate and you’ll see what I mean, and respectfully, they’re not so very different from English lawyers); […]
[…] The principle actors in writing their financial services legislation are bankers, lawyers and accountants. For example, Jersey’s new Trust Act passed in 2006 which allows the blatant creation of sham trusts that can only be of benefit to tax evaders was presented complete to the parliament, and was nodded through by it without a vote. See this . Who promoted it? The local financial services community, of course. […]
Maybe it was just to keep up with Cayman & BVI legislation which had been around for years? I cant see a mention of this
[…] a legislature for hire, doing what is asked for them. So, for example, Jersey’s obnoxious Trust Law of 2006 was passed without a vote in the States of Jersey since no one objected, or as far as I can tell […]
This amendment provides that a settler of a trust may reserve to him or herself certain powers specified in the law, or the grant of a beneficial interest in the trust property, without affecting the validity of the trust or postponing the commencement of the trust. Amongst the powers that a settler may reserve are the power to amend or revoke the trust, to appoint new trustees and to remove trustees, to appoint or remove an investment manager or investment adviser, to give directions to the trustee in connection with the purchase, retention or sale of trust property, to give directions to the trustee for the distribution of trust property and to restrict the exercise by the trustee of some of its powers or discretions.
Law Training Contract
Agreed. You’re 100% right.
But what you have described means that there has been no gift into trust and the trustees are mere nominees for the settlor.
In that case to call this arrangement a trust is to legalise a sham. That is fraud.
I suggest the governments who have permitted this arrangement did so knowing that the use of these trusts would be fraudulent. They have no other purpose given that they are intended for use outside the territories that create them where trusts will be assumed to have quite different characteristics.
Richard
[…] A more pernicious and recent example of this are the sham trusts that Jersey has allowed to operate from its domain since 2006, see here. […]
If the definition of a trustee is one who holds funds/property in trust for another, it’s clear that no trust is created by one holding in his/her own name alone – since it doesn’t meet the definition of a trust.
To arrange/organize such a trust must therefore be a scam by the creator, i.e., the attorney or guide who allows such a trust to be made and disguised as legal. How scam trusts are made and sold by professionals is a problem of criminal law violation as well as ethics since the funds/property are stolen from the beneficiary in whose name they are held by the owner.
[…] record. It has no idea how many trusts use its domain. It has 0% tax on corporate profits. It has sham trusts created for the sole purpose of facilitating international tax fraud. It allows corporate […]
[…] record. It has no idea how many trusts use its domain. It has 0% tax on corporate profits. It has sham trusts created for the sole purpose of facilitating international tax fraud. It allows corporate […]
New Jersey sure is etting themselves up for alot of fraud cases not only with NJ natives but also people looking to come to NJ just start a company and one of these trusts.
[…] why did New Labour give assent to Jersey’s Trust Law of 2006 which permits the creation of sham trusts?), the Ministry of Justice is also responsible for the appointment of almost all the key officials […]