Panama Papers I

 Blog No. evasion

With the leaking of the so-called Panama Papers, public attention has been drawn to the functioning of offshore trusts. Most people will have little understanding of how these trusts actually operate. Offshore trusts are designed to perform and, not unusually, to mask, activities both legal and illegal. In my next blog I will look at the leaking of the Panama Papers and the global functioning of offshore trusts in general terms. In this blog, I only have space to look in detail at two, specific and insignificant examples of their operation as vehicles of deceit and robbery. How many trusts do the Panama Papers reveal? Mossack Fonseca, whose database was hacked, is just one law firm in just one such haven. When one starts adding up the totals, the enormous scale of the open-air robbery being conducted against those, who, for whatever reason are not feeding at this trough, becomes apparent. Hundreds of billions, if not trillions, of dollars are involved.

panama-papers-by-the-numbers-graphicI have had second-hand, but not too distant insight into the operations of two such trusts – one criminal, and designed to rob the Belgian government and one ‘legitimate,’ and designed to rob the Canadian government.

A criminal trust. Several decades ago while I was still involved in business training, I was friendly with an Australian, John (not his real name) who ran a management training company in Birmingham. John had dual citizenship and held both British and Australian passports. He confided in me the mechanism of how he worked a deal involving an offshore trust.

His company had won a contract to provide a consultancy with an offshoot of the Belgian Ministry of Education. Dealing directly with the head of the institution concerned, John was contracted to provide two English-speaking lecturers for three years, in a town outside Brussels. The deal was that he would provide two lecturers, but would invoice for four.

He approached a firm of accountants in Jersey, and set up a discretionary trust. (i.e. The funds involved were to be deployed at the sole discretion of the trustees.) John was the settlor of the trust and thereby, by law, insulated from the trustees appointed by the accountancy firm and, who resided in three different European countries. They, in theory, were required by law to act completely independently from any influence that emanated from the settlor once the trust had been established. The trustees’ legal responsibility was to ensure that the trust worked for the benefit of the beneficiaries. In was to be called the Neverland Trust and was for the main purpose of supporting the widows of drowned fishermen ‘and other beneficiaries deemed suitable by the trustees.’

Working to John’s non-recorded,  off-the-record verbal instructions, the trustees (controlled by the accountants) registered a company in Jersey, whose name I now forget – call it Abacus Ltd, of which the shares were wholly owned by the Neverland Trust. Two lecturers were recruited by John, employed by Abacus Ltd. and placed in position in Belgium. The Belgian government’s training agency was duly invoiced for the services of four teachers and the invoices paid into an account opened by Abacus in Jersey, from where the two lecturers were paid on a monthly basis. So too, were the fees of the accountancy firm that had set up and administered the structure and which would ensure that, in turn, the trustees received their fees for services rendered (or sinecures occupied.)

Meanwhile, the fast accumulating surplus in its Jersey account was transferred to an account that Abacus opened in Luxembourg as a cut-out on any paper trail that might be followed. Here it sat for a few days before being moved on to another Abacus account held in Zurich. From there, 70% of the loot was transferred to an account in Lausanne, which had been opened by the Belgian responsible for placing the contract with Abacus. Every so often, using his Australian identity as a precaution, John would visit Abacus’s bank in Zurich and withdraw his 30% of the surplus in high denomination notes.

money laundryIt was a sweet deal, which could not be described as anything other than criminal. The widows of drowned fishermen never got a look in. The Belgian tax- payer was robbed and British tax was avoided.

I asked John , who was a friend and whom I had always regarded as a moral person, how he justified indulging in this blatantly anti-social and criminal activity. He said that the tricky bit might have been Belgium. However, several years previously, he had lost a civil suit in a Belgian court in a  manner, which left him not only out of pocket , but also feeling seriously wronged by the Belgian system. He therefore justified to himself his deal with the Belgian civil servant as a way of recovering his losses.

As for the other accountants, lawyers, and  bankers outside Belgium, who were all viewed in their societies as moral and upright members of the local community, without exception, they were aware of the fact that the sort of deals he was conducting almost certainly meant he was indulging in activity in some other country that would be deemed criminal. However, operating these financial rat-lines was their way of earning a living. Their willing complicity in such activity allowed him to feel that it was an acceptable and internationally recognised sport that he was indulging in and one, which was fully authorised by the local governments, whose economies benefited from the inflow of funds. He therefore felt more exhilaration than guilt on that account.

No doubt, with the new international, anti-terrorist, money-laundering regulations and the impending moves towards a cashless society, the scheme would be more difficult to operate today. However, I am confident that, with all the high-powered banking and accountancy vested interests involved globally, ways and means are still and continuously being found to by-pass whatever (intentionally circumventable?) regulations have been put in place by national governments. Using this simple discretionary trust, cut-out mechanism, these offshore trusts must provide laundering cover for any number of such blatantly criminal transactions.

Obviously, not all offshore trust activity is criminal in its intent. I am sure the vast majority of it is simply a means by which the wealthy can avoid paying tax, thereby ensuring that the less well-off members of their society take up an unfair portion of the tax burden imposed by governments.

A ‘legitimate’ trust. The ‘legitimate’ offshore trust activity I referred to in the first paragraph refers to a Cayman Island trust. I have a close friend, who lives in New Zealand and is one of three siblings, who between them own a significant private company (annual turnover in excess of C$500 million) registered in Canada. My friend married an American, whom the family regarded as ‘unsuitable.’ Consequently, she ended up being ostracised by her two brothers and was cut out of her authoritarian father’s will. Like so many of the extremely wealthy, the father considered his obligations were to himself and the obedient members of his family, rather than to the society from which his fortune was drawn. Resenting paying so much tax to the Canadian government, he set up a discretionary trust in the Cayman Islands of which, unbeknownst to her, the remote daughter was nominated as the prime beneficiary. Had the beneficiaries been her brothers, who were resident in Canada, they would have been legally bound to declare this source of income to the CRA (Canadian Revenue Authority.)

canadian cashI don’t know by what evasive mechanism the initial sum of money was transferred from the company’s accounts to the offshore trust. Once in the Trust, the C$10 million or so, which ended up in a Cayman Island bank account would be available for making tax-free investments wherever, and/or, for the brothers to use as an undeclared source of personal income from which to finance their very regular global travel junkets. The international trust operating company would unofficially listen to the brothers’ (who had now, after the death of their father, inherited the role of the ‘settlor’) untraceable instructions. These were to keep the existence of the trust secret from its nominated beneficiary.

Thus the brothers could appropriate the monies, which were legally due to their sister, to their own ends, while at the same time, not being legally bound to declare to the CRA the existence of an offshore trust of which they were not the nominated beneficiaries. The trustees of this offshore trust have in fact paid as little regard to their apparent ‘duty’ to the nominated beneficiary of the trust they administer, as did the trustees of Neverland’s Jersey trust to the widows of drowned fishermen.

My friend only recently picked up on how she was being used – and that is an altogether different story.

For a good introductory article to this world


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