Ethics and governance in the European Financial centers

Richard Murphy quoted Jack Blum, a US attorney who has specialised in tackling offshore abuse for many years. He can fairly claim to have done more to expose BCCI than anyone else.

Jack Blum testified before the Senate Finance Committee investigation and analysed the problem with the BVI :

The tax avoiders and tax cheats see national borders as their friends and freely use secrecy jurisdictions and jurisdictions with lax trust, corporation and insurance laws to create structures that hide money from tax collectors and law enforcement.

Some jurisdictions have developed specialities in providing these products. The British Virgin Islands, for example, is the place to go for quick, cheap, anonymous incorporation. It has more than 500,000 shell companies. It has also developed a new trust “product” that allows a “trust” to be the owner of a corporation without the trustee having any knowledge about the operation of the corporation. Under U.S. law this is not a “trust.”

It is important to understand that the structures are mere pieces of paper with no commercial reality. They are backed by formalities that allow them to pass paper checklists in other jurisdictions including the United States. For example, the island of Nevis, part of the Federation of St. Kitts and Nevis, is home to tens of thousands of corporations, all of which have boards of directors. When banks and brokerage firms ask about the control of the corporation for AML purposes, the person opening the account furnishes the passport photos of the nominee shareholders, officers and directors. The same twenty people are the nominees for thousands of corporations. They have no knowledge of, or fiduciary responsibility for the corporation’s business. If the nominee directors and officers were water-boarded they could not tell you what the corporation was doing or who owned it. They do not participate in “corporate” decisions and keep no records relating to corporate activities. They do not even know where the records are.

BVI is not the only jurisdiction which has legalized “sham” trusts. Other jurisdictions have passed trust laws that leave the trustee with little or no responsibility