Offshore Trust and asset protection benefits
An offshore trust is very much like a traditional trust in that it comprises a relationship or arrangement entered into by a person or group designated to be the “Trustee,” and a distinct person or group of people designated the “Settlor,” by which provisions are made in a binding, written legal form known as the “Trust Deed,” in order to hold title to assets and property, to manage said assets in accordance with the trust deed, in order to provide a series of benefits and distributions to a person or group of persons designated the “Beneficiaries.”
The trustee and/or the trust company charged with the management of the trust are bound by a fiduciary duty o uphold the agreement, and they agree to the rules and requirements set out by the trust deed. A trust is neither fish nor fowl, and though attempts at describing a trust often likens them to a corporation or foundation, they are unlike either; they are a trusting arrangement, supported by a binding written agreement, to provide for the benefit of the beneficiaries.
Once the decision to form the trust is reached, the settlor must then select the type of trust he wishes to form, its duration, and make important decisions on defining details. These details include deciding whether the trust is revocable or not, whether the trust will be discretionary or not, and to specify the rights, duties, obligations, and expectations of the trustee.
With respect to the revocable or irrevocable trusts, much as their names imply, they can either be revoked at any time with the terms for this outlined by the settlor, or they can have a pre-determined lifespan with no provisions for revocability, and only concluding when the terms of its creation as specified in the trust deed are met.
By contrast, a discretionary trust can fall under either category, and is defined as a trust with much built-in flexibility with respect to how the trustee handles distributions to beneficiaries, and even provides, in some instances, the trustee with rights to appoint or add beneficiaries. This relinquishes a lot of authority over the Offshore trust to a trustee, however, and highlights the importance of the careful selection of a competent, well-reputed trustee or trust holding company with good references, a worthy reputation, and the experience necessary to successfully and faithfully fulfill and honor the terms of the trust.
Main article: List of offshore financial centres
Offshore financial centres include:
* Antigua and Barbuda
* Bahamas
* Barbados
* Belize
* Bermuda
* British Virgin Islands
* Cayman Islands
* Channel Islands (Jersey and Guernsey)
* Cook Islands
* Cyprus
* Dominica
* Gibraltar is no more an offshore centre since 30 June 2006. No new Exempt Company certificates are being issued from that date. [7] [8]
* Ghana [9][10]
* Hong Kong
* Isle of Man
* Labuan, Malaysia
* Liechtenstein
* Luxembourg
* Malta
* Macau
* Mauritius
* Monaco
* Montserrat
* Nauru
* Panama
* Saint Kitts and Nevis
* Seychelles
* Switzerland
* Turks and Caicos Islands
n terms of offshore banking centres, in terms of total deposits, the global market is dominated by two key jurisdictions: Switzerland and the Cayman Islands,[5] although numerous other offshore jurisdictions also provide offshore banking to a greater or lesser degree. In particular, Jersey, Guernsey and the Isle of Man are known for their well regulated banking infrastructure. Some offshore jurisdictions have steered their financial sectors away from offshore banking, as difficult to properly regulate and liable to give rise to financial scandal.
In the 21st century, regulation of offshore banking is allegedly improving, although critics maintain it remains largely insufficient. The quality of the regulation is monitored by supra-national bodies such as the International Monetary Fund (IMF). Banks are generally required to maintain capital adequacy in accordance with international standards. They must report at least quarterly to the regulator on the current state of the business.
Since the late 1990s, especially following September 11, 2001, there have been a number of initiatives to increase the transparency of offshore banking, although critics such as the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC) non-governmental organization (NGO) maintain that they have been insufficient. A few examples of these are:
* The tightening of anti-money laundering regulations in many countries including most popular offshore banking locations means that bankers are required, by good faith, to report suspicion of money laundering to the local police authority, regardless of banking secrecy rules. There is more international co-operation between police authorities.
* In the US the Internal Revenue Service (IRS) introduced Qualifying Intermediary requirements, which mean that the names of the recipients of US-source investment income are passed to the IRS.
* Following 9/11 the US introduced the USA PATRIOT Act, which authorises the US authorities to seize the assets of a bank, where it is believed that the bank holds assets for a suspected criminal. Similar measures have been introduced in some other countries.
* The European Union has introduced sharing of information between certain jurisdictions, and enforced this in respect of certain controlled centres, such as the UK Offshore Islands, so that tax information is able to be shared in respect of interest.
Joseph Stiglitz, 2001 Nobel laureate for economics and former World Bank Chief Economist, told to reporter Lucy Komisar, investigating on the Clearstream scandal:
"You ask why, if there's an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It's in the interest of some of the moneyed interests to allow this to occur. It's not an accident; it could have been shut down at any time. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don't comply with G7 banks regulations, these banks could not exist. They only exist because they engage in transactions with standard banks."[1]
In the 1970s through the 1990s it was possible to own your own personal offshore bank; mobster Meyer Lansky had done this to launder his casino money. Changes in offshore banking regulation in the 1990s in the form of "due diligence" (a legal construct) make offshore bank creation really only possible for medium to large multinational corporations that may be family owned or run.
A series of articles published on June 23, 2006, by The New York Times, The Wall Street Journal and The Los Angeles Times revealed that the United States government, specifically the Treasury Department and the CIA, had a program to access the SWIFT transaction database after the September 11th attacks (see the Terrorist Finance Tracking Program) rendering offshore banking for privacy severely compromised.
Offshore banking is an important part of the international financial system. Experts believe that as much as half the world's capital flows through offshore centers. Tax havens have 1.2% of the world's population and hold 26% of the world's wealth, including 31% of the net profits of United States multinationals. According to Merrill Lynch and Gemini Consulting's “World Wealth Report” for 2000, one third of the wealth of the world's “high net-worth individuals”—nearly $6 trillion out of $17.5 trillion—may now be held offshore. Some $3 trillion is in deposits in tax haven banks and the rest is in securities held by international business companies (IBCs) and trusts.
The IMF has said that between $600 billion and $1.5 trillion of illicit money is laundered annually, equal to 2% to 5% of global economic output. Today, offshore is where most of the world's drug money is allegedly laundered, estimated at up to $500 billion a year, more than the total income of the world's poorest 20%. Add the proceeds of tax evasion and the figure skyrockets to $1 trillion. Another few hundred billion come from fraud and corruption. "These offshore centers awash in money are the hub of a colossal, underground network of crime, fraud, and corruption" commented Lucy Komisar quoting these statistics.[1] Among offshore banks, Swiss banks hold an estimated 35% of the world's private and institutional funds (or 3 trillion Swiss francs), and the Cayman Islands (1.9 trillion US dollars in deposits) are the fifth largest banking centre globally in terms of deposits. [4]
It is possible to obtain the full spectrum of financial services from offshore banks, including:
* deposit taking
* credit
* wire- and electronic funds transfers
* foreign exchange
* letters of credit and trade finance
* investment management and investment custody
* fund management
* trustee services
* corporate administration
Not every bank provides each service. Banks tend to polarise between retail services and private banking services. Retail services tend to be low cost and undifferentiated, whereas private banking services tend to bring a personalised suite of services to the client.