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(English) Wedlake Bell On Eu’s Proposed Trust Disclosure Rules

By Camilla Wallace and Edward Craft

Published by Wealth Briefing

August 12th, 2016

Trusts are part of an international drive for great transparency about beneficial ownership and control. A great deal is at stake for Common Law jurisdictions in which trusts are a feature, as this article argues.

Recent years have seen a number of calls for public registers of beneficial ownership of companies and trusts, or other measures to open up information about ownership and control. In the case of trusts, these structures are familiar parts of the English Common Law; public registers raise particularly tricky issues for Common Law jurisdictions such as England, various overseas territories such as the Cayman Islands, as well as Singapore and Hong Kong. Disclosure of beneficial ownership seems a self-evidently “good thing” in an era that craves transparency and abhors secrecy. The Panama Papers saga earlier in the summer reinforced demands for beneficial ownership information. Not every observer of such matters beliefs public registers are the best course (see this article here below). The issue remains controversial – what is the correct dividing line between secrecy, seen as a bad thing, and legitimate privacy, a good thing? And the European Union has weighed in – but how will its directives take effect on the UK, for example, if the country is leaving the European Union following the June Brexit vote?
This article, by Camilla Wallace, partner in the private client team, and Edward Craft, partner in the corporate team, at Wedlake Bell, a UK law firm, examines the issues. The issues are by no mean confined to the UK, and we hope readers in a number of jurisdictions find this article of value.

Recent years have seen a number of calls for public registers of beneficial ownership of companies and trusts, or other measures to open up information about ownership and control. In the case of trusts, these structures are familiar parts of the English Common Law; public registers raise particularly tricky issues for Common Law jurisdictions such as England, various overseas territories such as the Cayman Islands, as well as Singapore and Hong Kong. Disclosure of beneficial ownership seems a self-evidently “good thing” in an era that craves transparency and abhors secrecy. The Panama Papers saga earlier in the summer reinforced demands for beneficial ownership information. Not every observer of such matters beliefs public registers are the best course (see this article here below). The issue remains controversial – what is the correct dividing line between secrecy, seen as a bad thing, and legitimate privacy, a good thing? And the European Union has weighed in – but how will its directives take effect on the UK, for example, if the country is leaving the European Union following the June Brexit vote?This article, by Camilla Wallace, partner in the private client team, and Edward Craft, partner in the corporate team, at Wedlake Bell, a UK law firm, examines the issues. The issues are by no mean confined to the UK, and we hope readers in a number of jurisdictions find this article of value.

https://sites.morimor.com/wp-content/uploads/sites/20/2016/08/On-EUs-Proposed-Trust-Disclosure-Rules-Aug-2016.pdf

(English) OCDE es la mayor amenaza mundial al Estado de Derecho

Por 

Panam Post

Publicado el 28 julio, 2016

(Common) OCDELa OCDE es una amenaza para el hombre común, porque como Lord Acton advierte, el poder corrompe y el poder absoluto corrompe absolutamente. (Common)

En estos momentos los amantes de la libertad deberían estar más preocupados que nunca porque las amenazas que la acechan provienen de varios frentes, incluso, de los más insospechados.

Por un lado tenemos al islamismo radical -principalmente a ISIS– que viene sembrando el pánico y subyugando directa o indirectamente, a una porción cada vez mayor de la población mundial.

Directamente, en Irak y Siria; indirectamente, en los países occidentales porque sus ataques terroristas provocan que en aras de “seguridad”, la gente vaya aceptando que sus gobiernos les vayan recortando sus derechos individuales.

Pero por el otro está la OCDE que, quizás, sea más peligrosa. ¿Por qué? Porque el desprecio por el Estado de Derecho de los terroristas es algo que salta a la vista. Sin embargo, no sucede lo mismo con la conducta de la OCDE, que es más sinuosa, y los medios de comunicación no filman a los muertos. En consecuencia, la gente no parece percibirlo. No obstante, mediante mecanismos y con fines diferentes, las autoridades de ambas organizaciones desean obtener un poder omnímodo.

ISIS busca dominar a las personas mediante el terror; la OCDE mediante la vigilancia del dinero que cada individuo tenga. Ambas conductas son despóticas.

Estar alerta frente a ISIS es fácil porque sus intenciones son diáfanas, en cambio, es mucho más difícil estarlo ante los “ogros filantrópicos”; es decir, los gobiernos democráticos. La gente suele creer que el hecho de que las autoridades sean electas mediante el voto popular en elecciones limpias es garantía suficiente de que sus derechos serán respetados. Nada más alejado de la verdad. El medio más eficaz para que las libertades civiles, económicas y políticas estén resguardadas es mediante el fraccionamiento del poder, la descentralización administrativa y la igualdad ante la ley. En otras palabras, mediante la limitación de toda potestad, incluso la del llamado “pueblo”.

La experiencia histórica ha demostrado que sin libertad económica, sin el control de nuestros medios de subsistencia, sin privacidad, todos los demás “derechos” son pura ilusión. Además, es imprescindible la existencia de un Poder Judicial independiente, eficaz y preparado, que tutele a los ciudadanos de los abusos gubernamentales.

En Occidente el Estado de Derecho se está degradando a pasos agigantados con impulsos de los países más avanzados. Un nuevo zarpazo a las libertades y garantías ciudadanas lo acaba de dar la OCDE con su “Intercambio Automático de Información Financiera” (AEOI), que con presiones y amenazas de sanciones económicas está imponiendo en el mundo entero.

En su página oficial expresa que “Dando un paso importante hacia una mayor transparencia y poniendo fin al secreto bancario en materia fiscal, la OCDE dio a conocer hoy la versión completa de un nuevo estándar global para el intercambio de información entre jurisdicciones”. Allí se establece que “El estándar prevé el intercambio automático y anual de información financiera entre gobiernos, incluyendo balances, intereses, dividendos y ventas de activos financieros, transmitida a los gobiernos por las instituciones financieras y cubriendo cuentas mantenidas por individuos y entidades, incluyendo trusts y fundaciones (…) El G20 encargó a la OCDE que trabajáramos con países del  G20 y la OCDE y con las partes involucradas para desarrollar un ambicioso modelo de intercambio de información que ayudara a los gobiernos a combatir el fraude y la evasión fiscal”, dijo el Secretario General de la OCDE Ángel Gurría. “Esta publicación nos acerca a un mundo donde los defraudadores fiscales no tengan donde esconderse”.

En las repúblicas, el principio que rige al individuo es la libertad. Cada uno puede hacer con sus vidas lo que le plazca sin tener que ir dándole cuentas a nadie de sus acciones o bienes, siempre y cuando no le haga daño a otra persona. En cambio el principio que rige a las autoridades es que únicamente pueden hacer aquello que los faculta la ley taxativamente. Sin embargo, vemos que estamos yendo hacia un orden social donde se está dando la situación inversa.

Alexis de Tocqueville advierte que siempre los mandatarios esgrimen “buenas razones” para coartar derechos, pero que si cedemos, con el correr del tiempo, nos daremos cuenta de que estamos sumidos en el fango de la opresión. Y justamente, para prevenir la tiranía, es que las constituciones liberales han impuesto el sistema de los checks and balances. La AEOI con diversas excusas salta por encima de ellos. Las autoridades impositivas pasarán a ser una especie de “policía secreta”, de KGB, que sin ningún tipo de control meterán sus narices en los asuntos privados del hombre honesto en forma “automática”, o sea, sin la supervisión o autorización de ningún juez.

¿Dónde va a parar la presunción de inocencia? Los gobernantes y sus agentes impositivos han decretado que todo el mundo es culpable de defraudación tributaria o lavado de dinero hasta que demuestren lo contrario. Invierten la carga de la prueba.

Se sabe que uno de las maneras más sofisticadas  de acallar voces críticas, es mediante el envío de inspecciones de las oficinas recaudadoras. ¿Qué garantías habrá para el contribuyente ahora? ¿Cómo se evitarán los abusos?

La OCDE impone sus decisiones pasando por encima de la soberanía de las naciones más débiles, creando “listas negras” o “grises” que hacen recordar al marcanthismo y su caza de brujas. Es bien conocida la clase de “ética” que se oculta tras ese tipo de persecuciones. A su vez frecuentemente –como está ocurriendo en Uruguay- las autoridades locales aprovechan la “bolada” para acabar con el secreto bancario y la protección de los jueces ante los desmanes de la impositiva.

Con medidas como el AEOI y la eliminación del secreto bancario, los jerarcas de la OCDE y los gobernantes uruguayos delatan que para ellos los habitantes son meros súbditos. La inmoralidad de su conducta queda en evidencia al constatar que la mayoría de esos “expertos” y funcionarios internacionales que van perfeccionando los mecanismos para exprimir al máximo a cada contribuyente, perciben suculentos sueldos libres de impuestos.

En ancas de este gobierno mundial que pretende imponer la OCDE, estamos volviendo a la situación imperante en el Antiguo Régimen, con sectores privilegiados y el “tercer estado”. Los primeros no pagan impuestos pero los cobran y se benefician de tal situación; los segundos tienen que trabajar el doble o el triple para mantener a sus familias y a esos sectores privilegiados vía presión tributaria.

¿Cómo la gente no va a tratar de protegerse del expolio de los gobernantes cuando la presión impositiva sobre las empresas en algunos lados es brutal? Por ejemplo, en España es de 58,2%, en Italia de 65.4%, en Francia de 66.6%.

Para colmo, nunca les alcanza y las deudas públicas suelen ser colosales. Es un despilfarro completo, un pozo sin fondo, al cual nadie le pone coto.

Medidas como el AEOI -que tanto alegran a gobernantes y funcionarios de organismos internacionales que no pagan impuestos sobre sus ingresos- son una preocupante noticia. Van a disminuir la riqueza de las naciones, las libertades menguarán, los individuos quedarán cada vez más sometidos a la arbitrariedad estatal sin posibilidades de defensa, porque no contarán con los recursos –ni económicos ni judiciales- para hacerlo.

La OCDE es una amenaza para el hombre común porque como Lord Acton advierte, el poder corrompe y el poder absoluto corrompe absolutamente.

Califican de ‘doble moral’ actuación de países de la OCDE

By Roberto González Jiménez

Published on La Prensa

July 11, 2016

 

They are engaging in some of the same practices they have criticized Panama for.

Members of the Organization for Economic Cooperation and Development (OECD) are making adjustments to their tax regimes in an attempt to attract more business, which according to Panamanian lawyer Alvaro Tomas, shows a “double standard” with which these countries have dealt with Panama.

One such country is France, which has sought to attract businesses from the United Kingdom in the wake of its decision to leave the European Union.

France announced last week a package of incentives that includes discounts in income tax and the right to exclude foreign assets for the calculation of capital tax for eight years, rather than the five years referred to in the current regime.

The plan also includes deductions for non-wage benefits such as employer-paid schools for the children of their employees.

“We are not at war with London, but there is a competition and we want to transform Paris into the main financial center of Europe,” said Paris Region President Valérie Pécresse, at the annual conference of the French financial industry.

“We want to build the financial capital of the future,” French Prime Minister Manuel Valls said.

“It is extremely curious, to say the least, after the diplomatic swagger and posturing made by the French government on the issue of tax competition, that it is now taking advantage of the departure of the United Kingdom from the Union European to offer a package of tax adjustments to attract investment to France,” said Tomas.

France not is the only country that has made offers of better tax conditions. The United Kingdom itself is considering changes to its tax structure to not only retain existing businesses, but to attract new ones as well. British Finance Minister George Osborne said that it wants to build a “super-competitive” economy with a low taxation for businesses.

Madrid is preparing a package of tax incentives as well.

Some of the countries that make up the OECD have dubbed Panama as a tax haven, despite the fact that those countries are now copying some of those same strategies.

“These were the countries that most pressured to Panama, and they are now having to resort to tax competition to keep or attract investment,” said the lawyer.

According to Tomas, the definition of tax haven, which would not fit Panama, is any jurisdiction that the difference in taxes between locals and foreigners.

“That would make it to France by definition in a tax haven,” he said.

(English) Panama Canal NYT Article Disappointingly Omits the Real Story

By Alan Krause

Denver, Colorado

Op-Ed

June 27, 2016


On Sunday, June 26, Panama celebrated the opening of their new canal, capable of passing the new breed of Neopanamax vessels carrying three times the container capacity of the existing locks built more than 100 years ago.  Panama should be incredibly proud of this achievement and even more proud of the journey their country has taken to arrive at this historic day.

The New York Times article published about the Panama Canal on June 22 attempted to paint a different picture of this journey.  It was an unbalanced critique of Panamanian politics with comments on the new canal design, construction, workmanship and environmental impacts.  As the CEO of the lead engineering firm for this monumental project, I cannot remain silent when the real facts have been conveniently overlooked.

First, the process used to select a design-build team and program manager for this project were the most transparent and ethical of any process I have witnessed on large civil engineering projects anywhere, including the United States.   The insistence on transparency stems from the high level of integrity the current and former Canal Administrators have as professionals. Panama should be grateful for their technical and management skills, their enduring commitment to quality and their unwavering integrity as leaders.  Projects this size and scale do not happen without this kind of leadership.

Second, it is easy to quote the firms that came in second in the bidding process regarding the design and construction quality.  Yet there is no mention in your article that this project involved concrete volumes, lock-gate sizes, and earthquake load requirements never before designed or constructed.   All of these have been successfully integrated into the new canal design and construction.

And third, the environmental impacts of this project were at the forefront of the design and construction. For example, water saving basins were designed and built to reuse 60% of the fresh water, resulting in less water consumption than the original canal, while passing vessels transporting three times the number of containers.  The hydraulic system brilliantly moves water without pumps (or power).

It was a privilege for me to be in Panama to celebrate this historic moment for Panama and the world—a celebration of remarkable vision, innovation and hard work.  In the halls of the Panama Canal Administration building, designed and built by the engineers and contractors of the original canal more than 100 years ago, there is a quote by President Theodore Roosevelt that captures the spirit of the men and women who built the original canal.  This spirit lives on today.

“It is not the critic who counts:  not the man who points out how the strong man stumbles or where the doer of deeds could have done better.  The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions who spends himself for a worthy cause; who at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails with daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”

It is unfortunate that the New York Times missed the real story of this remarkable engineering triumph.

OMC reitera fallo a favor de Panamá

Luis Bellini

08 jun 2016 – 06:35h

La Prensa

The World Trade Organization (WTO) ruled yesterday in favor of Panama in a dispute with Colombia over the application of a joint tariff on imports of textiles, clothing and footwear that was adopted in March 2013 by the South American country.

The body upheld its November 2015 ruling in favor of Panama, which found that tariffs applied by Colombia were higher than permitted and that, despite its intention to combat money laundering, it was not necessary to do so.

The tariff charged by Colombia was 10 percent plus a surcharge.

Upon hearing the decision, Minister of Commerce and Industry Augusto Arosemena said that Colombia should “follow this new ruling in favor of the claims of Panama.”

Colombian Trade Minister María Claudia Lacouture reacted yesterday and said in a statement that it will discuss the decision “with the aim of implementing changes as appropriate.”

Órgano de Apelación revierte decisión previa

08 jun 2016 – 06:35h

A mediados de abril, el Órgano de Apelación de la Organización Mundial del Comercio (OMC) revocó las conclusiones del grupo especial que abordó la disputa entre Panamá y Argentina sobre ocho medidas relativas al comercio de mercancías y servicios.

Empero, el órgano no hizo ninguna recomendación sobre la conformidad de las medidas en cuestión.

En diciembre de 2012 Panamá impugnó las medidas que decretó Argentina, al entender que imponen requisitos diferentes a países “cooperadores” y “no cooperadores” en relación con la transparencia fiscal.

Panamá denunció que las medidas de Argentina son discriminatorias y violatorias del Acuerdo General sobre el Comercio de Servicios (GATS, por sus siglas en inglés).

(English) Panama Papers, Tax Planning, and Political Corruption

by Dan Mitchell

April 7, 2016

wrote a couple of days ago about the “Panama Papers” issue and touched on the key issues. I explained that this non-scandal scandal is simply another chapter in the never-ending war by high-tax governments against tax competitionfiscal sovereignty, and financial privacy.

Here are a few of the other points I made: .

I touched on some of these topics in this interview with Neil Cavuto.

httpss://youtu.be/ypW_2Hs42fs

Let’s look at what some others have written on this issue.

Veronique de Rugy of the Mercatus Center looks at some reactions from onshore politicians, which range from illogical to extremist.

“The French finance minister, for instance, already put Panama back on the list of countries that aren’t sufficiently willing to help enforce onerous French tax law. That’s despite France’s removal of Panama from its list of uncooperative states and territories in 2012 after reaching a bilateral agreement on precisely that issue. President Barack Obama, on the other hand, recognizes that most of the activities reported in the stolen pages are legal. As such, he wants to do something that might be even more radical than what France has done. He proposes making it illegal to legally reduce one’s tax burden. Falling back on some generic and zero-sum concept of tax fairness, he told reporters that we “shouldn’t make it legal to engage in transactions just to avoid taxes” and that he wants to enforce “the basic principle of making sure everyone pays their fair share.”

So France wants to punish Panama, even though Panama already has agreed to help enforce bad French tax laws. Meanwhile, President Obama reflexively wants to punish taxpayers who have the temerity and gall to not voluntarily over-pay their taxes (an issue where Donald Trump actually said something sensible).

As an economist, Veronique highlights the most important issue (assuming, of course, one wants more prosperity).

“If you want more global trade and more global investments, international bureaucracies such as the Organisation for Co-operation and Economic Development and governments around the world shouldn’t make it harder to operate international businesses and engage in cross-border investment and business.”

Then she looks at discouraging developments from her home country.

“For years, France has punished its entrepreneurs and businesses with high taxes and terrible laws. As a result, last year alone, some 10,000 French millionaires called it quits and moved abroad. However, rather than reform its tax laws and streamline its government, it wants to put its grabby hands on some cash… But it won’t work in the long run. France and other high-tax nations can try very hard to destroy tax competition, financial privacy and the sovereignty of countries with better tax structures, but they still won’t be able to afford their big and broken welfare states. …That’s the real financial scandal.”

Amen. This is a simple matter of math and demographics.

The Wall Street Journal also has opined on the controversy, wondering about the fact that some folks on the left are fixating on legal tax avoidance.

“The papers…purport to document the dealings of the Mossack Fonseca law firm, which appears to have helped wealthy clients establish shell companies in Panama, a rare remaining bastion of bank secrecy. …The fact that an individual created such a company, or opened bank accounts in Panama, is not proof of any wrongdoing… That’s not stopping the media from jumping to conclusions, many are oddly focusing on tax avoidance.”

There’s a reason for the fixation on tax avoidance, of course. Politicians realize that they need to demonize legal tax if they want to impose big tax hikes by shutting down loopholes (both the real ones and the fake ones).

In any event, the editors agree that the real issue from Panama Papers is the presumably dodgy accumulation of assets by politicians.

“The mistake now would be to narrow the focus prematurely, zeroing in on tax avoidance that is a hobbyhorse of the political class but in this case is a distraction. The real news here are the incomes and far-flung bank accounts of the political class.”

The WSJ is right.

I touch on that issue in this interview with CNBC, explaining that it should be a non-story that international investors use international structures, but hitting hard on the fact that politicians so often manage to obtain a lot of wealth during their time in public “service.”

httpss://youtu.be/XRCeMn2JXN0

The bottom line is that if we’re going to have a crusade for transparency, it should focus on government officials, who have a track record of unethical behavior, not on the investors and entrepreneurs who actually earn their money by using capital to boost growth.

I should have dug into my files and provided a few examples of the hypocritical American politicians who have utilized tax havens. Such as…ahem…the current Secretary of the Treasury.

Speaking of hypocrisy, Seth Lipsky of the New York Sun identifies another strange example of double standards, in this case involving privacy.

“The New York Times…defended Apple when the iPhone maker refused to help the FBI break into the iPhone that had been used by the Islamist terrorists who slew 14 innocent people in San Bernardino. It even praised Apple for refusing to help. Yet it’s joining in the feeding frenzy over what are coming to be known as the Panama Papers…calling for major investigations into money laundering and tax evasion.”

I was sympathetic to Apple’s legal argument, even though I also wished the company would have helped the FBI (albeit without giving the government any details that could have been used to create a backdoor into all of our iPhones).

But Mr. Lipsky is right that the privacy-loving defenders of Apple have a remarkably inconsistent approach to the issue.

“Where were most of the do-gooders…when the FBI was frantically trying to gain access to the infamous iPhone? It might be able to tell us to whom the killers had been talking and whether they were planning more attacks. …Apple…got cheered by all the right people. The Gray Lady…praised Apple for refusing to help. …So why are the do-gooders who are so protective of iPhone data when it belongs — or relates — to terrorists nonetheless so delighted about the disclosure of data when the data belong to the rich? Or relates to their property? Property rights, it seems, just don’t interest the do-gooders. They don’t believe individuals have a right to property or to due process before their stuff is taken.”

This is a great point.

What it basically shows is that leftists (“do-gooders” to Seth) have more sympathy for medieval butchers who kill innocent people than they have for over-burdened taxpayers who actually want to preserve their money so it is used to promote prosperity rather than to fatten government budgets.

By the way, I can’t resist sharing another excerpt.

“…tax havens can serve a benign purpose. They put pressure on law-abiding governments to keep taxation within non-abusive limits, something that is increasingly rare in the age of socialism.”

Bingo. This is why everyone – especially those of us who aren’t rich – should applaud low-tax jurisdictions.

Just imagine how high taxes would be if politicians thought all of us were captive customers!

Let’s look at one final interview on the topic. But I’m not sharing this BBC interview because I said anything new or different. Instead, I want to use this opportunity to grouse about media bias. You’ll notice that I was out-numbered 2-to-1 in the discussion (3-to-1 if you include the host).

httpss://youtu.be/yz-8D2QcGm8

But I’m not upset I was in the minority. That’s so common that I barely noticewhen it happens.

What did irk me, though, was the allocation of time. Both statists got far more ability to speak, turning a run-of-the-mill example of bias into an irritating experience.

On the other hand, I did get to point out that the OECD bureaucrat was staggeringly hypocritical since she urges higher taxes on everyone else when she (like the rest of her colleagues) gets a tax-free salary. So maybe I should be content having unleashed that zinger.

(English) For research, we pretended to be crooks and terrorists and tried to buy shell companies. The results were disturbing.

The Washington Post

By Jason Sharman

April 7th, 2016

https://wapo.st/1URjrto The Panama Papers consist of 11.5 million documents from Panama-based law firm Mossack Fonseca. The papers apparently implicate a number of high-profile global figures in potentially illegal financial activities. (The Washington Post)

People across the world, including world leaders, have been variously scandalized, enraged, and embarrassed by a massive leak of financial data from the Panamanian law firm Mossack Fonseca. Termed the Panama Papers, these data comprise millions of pages of files exposing over 200,000 offshore companies, many or most of which were likely used by their owners to conceal their wealth, or, in some cases, worse. Many are asking how tax havens like Panama and the British Virgin Islands (where over half the companies were formally incorporated) can get away with so much shady dealing, and how we can stop them.

They’re asking the wrong question. Research by Michael Findley, Daniel Nielson and myself suggests that Caribbean-style tax havens are only half the story. If you really want to understand the problem of of secret companies and dirty money, you should be paying at least as much attention to what big states, especially the United States, are doing, and not doing.

I wanted to know how offshore companies and bank accounts worked, so in 2009 I went shopping to see if I could buy my way into the financial system without having to prove who I really was, directly violating international financial transparency rules that require firms to “Know Your Customer.” I approached a mix of 54 firms which, like Mossack Fonseca, advertised that they were willing to form shell companies and set up bank accounts. Some of these firms were in classic tax havens like Panama, the Cayman Islands, and Liechtenstein, while others were located in the United States and other OECD countries.

The result I found was startling. It was much easier to set up a company without having to prove my identity in the United States and other “onshore” countries than in the offshore havens. One firm in Wyoming not only offered to sell me an untraceable shell company and a bank account held in the name of the company, but also suggested I pay for one of their employee’s Social Security numbers to further obscure the trail. In contrast, tax haven-based firms were much more likely to insist that I sent a scanned, authenticated copy of the picture page of my passport before they would do business.

An NPR journalist tried out my scheme again in 2012 by setting up a company in the tax haven of Belize (incorporated under the name Unbelizable), and another in Delaware (incorporated as Delawho?). Theresult was the same: the Belize firm followed the Know Your Customer rule, but the Delaware firm supplied the shell company no questions asked.

How can it be that the United States is more of a secrecy haven than Panama, the British Virgin Islands, etc.? Michael Findley, Daniel Nielson, and I decided to get to the bottom of this by shopping for shell companies on an industrial scale in a project called Global Shell Games. We impersonated a rogues’ gallery of 21 would-be money launderers, corrupt officials, and terrorist financiers, and sent over 7,000 emails asking firms like Mossack Fonseca to set up prohibited untraceable shell companies to shell in 180 countries.

We wanted to know whether these firms would require us to prove our identity in accord with international rules. This would help us to answer three important questions. First: how well do the global rules banning the formation of untraceable shell companies that hide the identity of the real owner work? Second: do incorporation firms respond differently to more or less risky customers? Third: which countries do a good, bad, or indifferent job of enforcing these Know Your Customer rules? The answers were counter-intuitive – and very worrying.

First, only about half of those firms that replied followed international rules by asking for the proper suite of ID documents from our fictitious ne’er-do-wells. Almost a quarter didn’t ask for any ID at all. Second, incorporation firms were generally just as willing to do business with high-risk customers as those with low-risk profiles, with the partial exception of customers who presented terrorism financing risks. Third –  getting back to Panama, we found that once again, firms in tax havens were actually much more likely to follow international Know Your Customer rules than those in the U.S. and other OECD countries.

Does this mean that Mossack Fonseca and other offshore firms are blameless? Hardly; if they facilitated real misdeeds, they deserve to be punished. But if this leak shows the damage that can be done with 200,000 offshore companies, remember that there are more than 15 million companies incorporated in the U.S. Then consider the advertising pitch of one U.S. incorporation firm: “A corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy. A person you control… yet cannot be held accountable for its actions. Imagine the possibilities!”

Jason Sharman is a Professor at the Centre for Governance and Public Policy, Griffith University

GAO (Oficina de Rendición de Cuentas del Gobierno de los Estados Unidos)

Highlights of GAO-06-376, a report to the Collected and Available Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, U.S. Senate:

https://www.gao.gov/assets/250/249636.pdf

Proyecto Senador Levin: Conozca A Su Cliente

STATEMENT OF REASONS

The first time Senator Levin presented this Project was in 2006, after the overwhelming GAO report against the corporations and LLCs in the USA.  The GAO report unveiled the true reality that the USA didn’t require the client´s identity or the beneficiary owner of legal entities.    This legislation wasn’t approved then and it was later revived in 2008, 2009 and 2011 but wasn´t approved either.

The main reason is the opposition of Senators from states like Delaware and Nevada, whose income depends on the sales of corporations and LLC´s abroad.   Even to this date, the USA doesn´t practice or require the “Know Your Client” Policy on legal entities.

112TH CONGRESS

1ST SESSION S. ll

To ensure that persons who form corporations in the United States disclose the beneficial owners of those corporations, in order to prevent wrongdoers from exploiting United States corporations in ways that threaten homeland security, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations, and for other purposes.

Levin, Grassley Introduce Bill to Combat U.S. Corporations with Hidden Owners

Tuesday, August 2, 2011

WASHINGTON – Sen. Carl Levin, D-Mich., chairman of the Permanent Subcommittee on Investigations, and Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Judiciary Committee, this week introduced the Incorporation Transparency and Law Enforcement Assistance Act to combat acts of terrorism, money laundering, tax evasion, and other wrongdoing facilitated by U.S. corporations with hidden owners. The bill would end the practice of the 50 States forming corporations for unidentified persons, and instead require the States to obtain the identities of the persons behind the corporations.

SEC. 2. FINDINGS.

Congress finds the following:

(1) Nearly 2,000,000 corporations and limited liability companies are being formed under the laws of the States each year.

(2) Very few States obtain meaningful information about the beneficial owners of the corporations and limited liability companies formed under their laws.

(3) A person forming a corporation or limited liability company within the United States typically provides less information to the State of incorporation than is needed to obtain a bank account or driver’s license and typically does not name a single beneficial owner.

(4) Terrorists and other criminals have exploited the weaknesses in State formation procedures to conceal their identities when forming corporations or limited liability companies in the United States, and have then used the newly created entities to support terrorist organizations, drug trafficking organizations, and international organized crime groups, as well as commit misconduct affecting interstate and international commerce such as trafficking in illicit drugs, illegal arms trafficking, money laundering, tax evasion, Internet-based fraud, securities fraud, financial fraud, intellectual property crimes, and acts of foreign corruption.

(5) Among those who have abused State incorporation procedures, Victor Bout, a Russian arms dealer now in United States custody on terrorism-related charges, used at least 12 companies incorporated in Texas, Florida, and Delaware to carry out his activities, and has been indicted, in part, for conspiring to sell weapons to a terrorist organization trying to kill citizens of the United States and Federal officers and employees.

(6) Law enforcement efforts to investigate corporations and limited liability companies suspected of wrongdoing that threatens homeland security have been impeded by the lack of available beneficial ownership information, as documented in reports and testimony by officials from the Department of Homeland Security, the Department of Justice, the Financial Crimes Enforcement Network of the Department of the Treasury, the Internal Revenue Service, the Government Accountability Office, and others.

(7) In July 2006, a leading international antimoney laundering and anti-terrorist financing organization, the Financial Action Task Force on Money Laundering (in this section referred to as the ‘‘FATF’’), of which the United States is a member, issued a report that criticized the United States for failing to comply with a FATF standard on the need to collect beneficial ownership information and urged the United States to correct this deficiency by July 10 2008.

(8) In response to the FATF report and to strengthen measures to protect homeland security, Federal officials have repeatedly urged the States to improve their formation practices by obtaining beneficial ownership information for the corporations and limited liability companies formed under the laws of such States. But the States continue to form millions of corporations with hidden owners.

(9) Many States have established automated procedures that allow a person to form a new corporation or limited liability company within the State within 24 hours of filing an online application, without any prior review of the application by a State official. In exchange for a substantial fee, 2 States will form a corporation within 1 hour of a request.

(10) Dozens of Internet websites highlight the anonymity of beneficial owners allowed under the formation practices of some States, point to those practices as a reason to incorporate in those States, and list those States together with offshore jurisdictions as preferred locations for the formation of new corporations, essentially providing an open invitation to terrorists and other wrongdoers to form entities within the United States.

(11) In contrast to practices in the United 13 States, all 27 countries in the European Union are already required to have formation agents identify the beneficial owners of the corporations formed by those agents under the laws of those countries.

(12) To protect homeland security, reduce the vulnerability of the United States to wrongdoing by United States corporations and limited liability companies with hidden owners, protect interstate and international commerce from terrorists and other criminals misusing United States corporations and limited liability companies, strengthen law enforcement investigations of suspect corporations and limited liability companies, set minimum standards for and level the playing field among State formation practices, and bring the United States into compliance with international anti-money laundering and anti-terrorist financing standards, Federal legislation is needed to require the States to obtain beneficial ownership information for the corporations and limited liability companies formed under the laws of such States.

(English) Special Meeting of the Permanent Council, March 30th, 2016

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