Trusts » Tax Research UK

Jersey really does permit sham trusts

Feb 082012

I’m grateful for having had an article in the Jersey & Guernsey Law Review from 2010 drawn to my attention. By Filippo Noseda, it discusses The Foundations (Jersey) Law 2009 under the title ‘A Civilian Perspective: Not so plain vanilla and possibly a tad wacky’.

It’s not exactly complimentary about the law but perhaps the most damning paragraph is this:

From a civilian perspective, the policy statement that a [Jersey] foundation may accord more control to the creator of the structure than a trust appears quite bewildering, given the amount of powers that a settlor of an ordinary Jersey trust may retain for himself under art 9A of the Trusts (Jersey) Law 1984 (2007 revision) without turning it into a sham or nomineeship—

“Powers reserved by settlor

9A.(1) The reservation or grant by a settlor of a trust of … any of the powers mentioned in paragraph (2), shall not affect the validity of the trust nor delay the trust taking effect.

(2) The powers are—

·     to revoke, vary or amend the terms of a trust or any trusts or powers arising wholly or partly under it;

·     to advance, appoint, pay or apply income or capital of the trust property or to give directions for the making of such advancement, appointment, payment or application;

·     to act as, or give binding directions as to the appointment or removal of, a director or officer of any corporation wholly or partly owned by the trust;

·     to give binding directions to the trustee in connection with the purchase, retention, sale, management, lending, pledging or charging of the trust property or the exercise of any powers or rights arising from such property;

·     to appoint or remove any trustee, enforcer, protector or beneficiary;

·     to appoint or remove an investment manager or investment adviser;

·     to change the proper law of the trust;

·     to restrict the exercise of any powers or discretions of a trustee by requiring that they shall only be exercisable with the consent of the settlor or any other person specified in the terms of the trust.”

Even without any prior knowledge of foundation law principles, it is difficult to imagine a wealth management structure under which the founder may retain more powers than those described under art 9A TJL without exposing such a structure to an attack based on sham.

I have argued since 2006 that the powers referred to were deliberately designed to create sham trusts. It’s good to see a lawyer agreeing that sich a possibility seems to be the case and the law helps it.

So much for the ‘well regulated’ offshore location that does not want anything to do with dubious activity.

France – tackling offshore trusts

Trusts Comments Off

Nov 072011

France looks to be making interesting moves to tackle offshore trust abuse.

There’s a technical note on the issue here.

Commentary would be welcome. My superficial look suggests potential problems with non-declaration and the inevitable problems of discretionary settlements with nominee settlors but any thoughts would be welcome.

Bon couarge

OECD, Secrecy jurisdictions, Trusts Comments Off

Oct 142010

Fran?ßois Aubert, a grand fromage (big cheese) in French politics and the chair of the OECD Global Forum (peer review group), also has something very interesting to say. Speaking in Les Echos, he said that not enough is being done to tackle the scourge of offshore trusts, adding:

Personally, I am favourable to the propositions made by non-governmental organisations to set up national registers of trusts which are harmonised, exhaustive and current. That’s why the second phase of the Forum’s work will tackle especially the geographical constructions involving trusts and other opaque arrangements.

We have been highly critical of the OECD, but these are welcome words.

But — and here comes a big but. We note that if this is his strong personal view, a look at the members of the peer group suggests he will have a fight on his hands. His four vice-chairs are India, Japan, Jersey and Singapore: half of them major secrecy jurisdictions. But that is not all. The peer review group itself consists of 25 jurisdictions and includes the BVI, Caymans, Ireland, Isle of Man, Luxembourg, Malaysia, Malta, Mauritius, St Kitts and Nevis, Samoa, Switzerland, the Bahamas, the Netherlands, the UK and the United States – all of them members of our Financial Secrecy Index, and most of them near the top of the list.

So 15 of 25 members of the peer group are secrecy jurisdictions: a full 60 percent. Take a look. We can only wish Mr. Aubert Bon Courage.

NB: reposted from the Tax Justice Network blog, with permission

FSA is losing war on insider dealing

Corruption, Secrecy jurisdictions, Tax Havens, Trusts 9 Responses »

Apr 232010

FSA is losing war on insider dealing – Telegraph.

Some 60pc of the members of the Chartered Institute for Securities & Investment Institute responding to a survey on whether the Financial Service Authority was winning the war on market abuse said the regulator’s actions had failed to make serious inroads against financial wrongdoing.

“The FSA still has a long way to go and should seek Government approval for bigger penalties and a zero tolerance,” wrote one of the 235 respondents to the CISI’s internet survey, which polled the organisation’s membership of stockbrokers, analysts, fund mangers and investment bankers.

And I’m quite sure large quantities of this will be done through offshore companies owned by offshore trusts, all managed by offshore professionals, all of whom turn a blind eye – or more likely, have no clue what their client is doing.

And yet those same offshore professionals who turn up on this site say there is no need for any public disclosure by offshore investment companies.

And say there will never be a need for a register of trusts with accounts available for public scrutiny.

Tehy’re wrong. Those structures are designed to assist fraud.

And that’s what they’re used for.

NB Fraud need not be a crime. Fraud is an intentional deception made for personal gain or to damage another individual. The secrecy offshore provides is key to that deception. It is fraudulent by definition.

Do they honestly expect anyone to believe this?

Trusts Comments Off

Feb 222010

The Lawyer magazine has published an article by David Harvey, who is chief executive of the Society of Trust and Estate Practitioners Worldwide. The likely bias in his opinion can be surmised from their name. He wrote:

The reality is that trusts are open to official scrutiny and are thus neither ’secret’ nor ’anonymous’. Trusts are subject to strict anti-money laundering regulations and information is available to governments on the source, owners and beneficiaries of trust funds. This information is shared, when appropriate, with other countries under terms of tax information exchange agreements (TIEAs).

This, very politely, is balderdash. It’s for good reason that the Swiss protest that a trust located in one jurisdiction owning a company located in another that banks in a third is now, and has always been for all practical purposes impenetrable and creates effective banking secrecy.

I do not believe STEP do not know that.

So why spin a story that is so very obviously misleading? Do they think they fool anyone? Or is it just self-reassurance?

Switzerland’s loss is Britain and America’s gain: Discuss (guest post)

Switzerland, Trusts Comments Off

Feb 112010

The Swiss French-language daily Le Matin is carrying an interview with Myret Zaki, author of a new book titled "Swiss Banking Secrecy is Dead: Long Live Tax Evasion!" (French only)

Setting aside the chauvinistic and insular tone, there are several interesting issues raised in the article that we’d draw your attention to.

Firstly, Ms Zaki is right to complain that the war on banking secrecy is uneven because nothing is being done about trusts. As we have observed, time and again, trusts are a major building block used in the construction of sophisticated tax evasion structures, and, of course, many other types of crimes hide behind the secrecy they offer. To tackle banking secrecy without also tackling trusts, foundations, shell companies, and so on, is incoherent and places Anglo-American secrecy jurisdictions at a distinct advantage. From where we sit, in London, it seems quite understandable when people in Zurich, Vienna and the Grand Duchy, put two and two together and arrive at a plot by the Americans and British to assert their dominance.

Second, we’re intrigued by Ms Zaki’s estimate of the global market for tax evading capital. In 2005 we estimated the scale of this market at USD11,500 billion, and rising fast. In her book, Ms Zaki estimates the market at USD13,500 billion. We’d like to know more about the basis of this estimate, but its sounds broadly plausible and amplifies our concerns that the tide still hasn’t turned in the battle against illicit financial flows and tax evasion.

Third, asked to comment on the recent suggestion by Swiss Finance Minister Hans-Rudolf Merz that Switzerland should consider moving towards automatic information exchange with the EU countries, Ms Zaki baulks and describes this as a step too far. Au contraire: this is long overdue, and further delays will simply magnify concern that Swiss banks are engaged in supporting tax evasion across Europe and beyond the continent’s frontiers.

Implicit throughout the interview is the idea that Swiss banks can only compete in the global markets on the basis of the advantage that banking secrecy laws provide. In other words, without the provision of secrecy services Swiss banks lack a competitive edge. They therefore depend for their survival on their usefulness to tax evaders.

Ms Zaki reflects an important strand of thinking in Switzerland and similar secrecy jurisdictions. But rather than defending the indefensible and seeking to protect a totally unsatisfactory status quo, she – and others who think like her – should be pushing the Swiss government to use its powerful diplomatic weight, not least with the OECD and the United Nations Tax Committee, to push for measures requiring full transparency of trusts, shell companies and all the other devices used by the secrecy jurisdictions operating under the wings of the UK and USA. And yes, to also make automatic information exchange the global standard for cooperation. This is only coherent way forward.

Hat tip: The above is by John Christensen of Tax Justice Network, reproduced with permission as I wholeheartedly agree with it.

India recognises the threat from trusts

Trusts Comments Off

Nov 202009

Trusts, NGOs under ambit of money-laundering law .

India is to extend its money laundering laws:

Charitable trusts, whether temples, churches or mosques, non-government organisations (NGOs), educational institutions or societies, if registered as non-profit organisations (NPOs), will not only have to disclose the source of their funds, but also be scrutinised for large monetary transactions.

The change has been done by an amendment to the Prevention of Money Laundering Act (PMLA) 2002, notified in the Official Gazette on November 12, to bring NPOs under the purview of the law. Earlier, the entities that fell under the ambit of the law included only chit fund companies, banking companies, financial institutions and housing finance companies.

I warmly applaud this. NGOs should be on the record, as should be other charitable bodies. They get special status, they must account for it. But the extension to trusts is especially welcome: they are a perfect conduit for abuse. Nothing less than full public registers of trusts with accounts on public record will do.

And for those who argue this is an invasion of privacy I have a simple response: no one asked anyone to form a trust. It is done to secure advantage. Advantage carries responsibility, in this case the duty to report.

Just tell us the truth

Jersey, Trusts 26 Responses »

Nov 112008

A commentator on this blog said recently:

The JFSC does know how many trusts are in Jersey. Just because this information is not made public what is the big deal?

He later added:

Every regulated entity must supply complete details of every client for compliance and licensing requirements and this includes Trusts. Believe me. They know what Trusts are in existence.

I challenged him, saying:

Please prove it. Chapter and verse. Details of what is provided. Precisely. And what statute and regulation requires it. And what details of the client have to be given, precisely. But I stress: chapter and verse. With reference to actual regulation, and documents.

To which his response has been:

With all due respect, but what authority do you have over Jersey to provide you with any proof? I know that the JFSC has a listing of all clients and it is part of the licence requirement and thats that.

This transparency argument is flawed, it is simply an untruth.

Which I find extraordinary. I am told the transparency argument is flawed, and yet all I am doing here is asking for a reference to regulation that proves this person’s case, and I am denied that evidence.

So let me weight the evidence of the respective arguments. First, I have been told repeatedly by people in Jersey that the Jersey authorities do not know how many trusts are in the island because there is no register of trusts and no obligation for their existence to be reported. For example, there is no requirement that they submit a tax return.

Second, I know of no regulatory authority with regard to money laundering in the world that requires a registered person to submit their client list to that regulatory authority. Why should they?

Third, I will reasonably presume from the failure to produce the evidence that I requested that there is no documentation that does actually require submission of this client list.

In that case, I stand by my argument. No one anywhere has any idea how many trusts there are in Jersey, and whether as a result they are regulated or not. What we do know is that not one of those trusts is required to produce accounts for any form of public inspection, and so long as they are for the benefit of nonresidents, not one has to submit a tax return anywhere, least of all in Jersey.

In that case I think my argument about transparency is proven.

I think I’ve proven something else as well: those who bluster from the Channel Islands and the Isle of Man on this blog are just blustering. There is no substance to their argument.

This one is going to cause some fun

Domicile, Tax Havens, Trusts 1 Response »

Mar 122008

The Budget notes say (page 246) that:

Transfer of Assets Abroad

27. Anti-avoidance legislation designed to prevent individuals from avoiding

income tax by transferring assets abroad will be amended to ensure these

anti-avoidance provisions apply to non domiciled individuals. The

remittance basis will apply to remittance basis users.

This is a massive change. It effectively says that once a non-domiciled person is resident here they can no longer set up non-resident trusts to avoid UK tax.

Very good news!