Whilst away I exchanged emails with an accountant friend who told me of a recent conversation he’d had at a party or some such event, he’d attended. I think he was shocked at what he’d been told, which he related as follows:
I heard an Entrepreneur proudly explaining that he made his money through property investment. He has since spent the last 5 years developing an internet based business. The company that will run it - world-wide - is located in the Seychelles to avoid UK tax.
"How does that work?" I asked him. He said there are independent shareholders and directors all based in the Seychelles. The shares are held on beneficial trust for him but no one knows that apparently. His further explanations suggested a degree of understanding as to what is required to avoid creating a liability to UK tax. Whether all of the paperwork and future transactions all accord with the plans that have been put in place remains to be seen.
The entrepreneur claims that the nominal shareholders have granted him a power of attorney to act on their behalf in the UK. He will be paid for such work - which includes all liaison with the UK accountants (a top ten firm). To all intents and purposes (on paper at least) he is simply providing consultancy services to an offshore company. he will declare and pay tax on these earnings. In practice he is helping to build value in a company the shares in which, when sold, are expected to realise a fortune that he will eventually receive after he has ceased to be resident in the UK. He plans to emigrate in 3 or 4 years time.
He says that his accountants, sorry, the company's UK accountants are a top ten firm. Does the contact partner know or suspect that the entrepreneur is in reality the beneficial owner of the shares of this supposed offshore company? How common is it for a UK resident to be given such wide discretionary powers and authority to act on behalf of third party offshore directors and shareholders? To what extent should the accountants make more enquiries before accepting appointments to act for such clients?
I confess to not sharing my friend’s shock at this tale — every single element of which I suspect to be entirely true (although I do not know the identity of any of those involved). What has been related is a classic tale of the abuse secrecy jurisdictions promote. I stress, this is not an accidental outcome of the structure that these places permit — it is the structure they intend should be created. That is because secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction. They do in addition create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
This does not happen by chance. This happens because all along the way the accountants, lawyers and bankers who create these structures deliberately let “their eyes glaze over” when it comes to asking appropriate questions about the use of secrecy jurisdiction structures. If, like the UK firm of accountants referred to in the story, you choose to ask a narrow and deliberately circumspect set of questions about the true nature of your client and the relationships into which they enter you can ignore the obvious implausibility of the arrangements they claim exist. This is normal secrecy jurisdiction behaviour — as I recently explained with regard to Jersey. It is also, unfortunately too commonplace onshore.
This is why radical reform of corporate and trust registration structures is essential for the benefit of all honest people in society. I explained that reform recently, here. Expect it to be opposed by large firms of accountants and lawyers though — precisely because so many are so heavily invested in secrecy jurisdictions — which is to their discredit.
We have a long way to go before we eliminate corruption onshore and offshore — and there’s no doubt they complement each other. But where’s source of the cancer? Offshore, I’m afraid to say: the wholly corrupt structure my friend recounted is based there. And it’s precisely why I don’t believe a word written by those who claim, often, on this site that offshore has cleaned up its act. It hasn’t. It’s just turned the other blind eye.