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HEART OF THE MATTER PHILIP SINEL, a senior partner at Jersey-based litigation firm Sinels, gives the pros and cons of offshore regulation. It’s never simple, always challenging — and does it have enough upsides to make it worth the hassle...?
A tale of regulators, gift-wrapped fraud and smoke-detectors in hell
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ONE view of offshore regulation, recently expressed provider. This is done by aggressive compliance to me by a former regulator, is that it is like fitting visits, skulduggery, underhand tactics, pressure and smoke detectors in hell. weight of numbers. Offshore clients like tax breaks, the absence of This has side effects, and a number of the transparency, the secrecy and the stability. After all, offshore providers now have private equity capital what else is there for an offshore firm to provide behind them. This means the pressure on profits beyond secrecy and sunny weather? goes up, so the ability of somebody with a legitimate As one client once put it, the point is to ensure reason for wanting an offshore trust — their ability activity is off the balance sheet and out of sight. to find an old-fashioned trustee in the proper sense Added to this is the fact that “offshore” now includes of the word, for example — is becoming limited. Delaware and the City of London. Offshore should There are legitimate functions for businesspeople really be re-defined as “in another place”. who are exposed to the vagaries of irrational or Leaving that to one side, arbitrary regimes, or where there this article is written on the is a danger posed by spendthrift basis of personal experience family members. Finding an oldSkulduggery, in the Channel Islands. After fashioned trustee for a small client the Edwards report, the islands can be very difficult. cleaned up their act. Evasion out, underhand tactics, There is also an unwholesome avoidance in. The evaders went — and, to my mind, unlawful pressure and off to do business in Switzerland, — community of interest and Mauritius and Panama, at least absence of delineation within the until the world started to twig weight of numbers regulator executive making the to the fact that not paying tax is decisions and the enforcement illegal everywhere. arm. The result? Allegations of The benefits of offshore structures remain: no partial or improper behaviour by the enforcers will published accounts, no publicly available list of go nowhere because the executive will not hear of shareholders and beneficial owners — that’s the it. foundation for multi-billion-pound businesses. The I have watched legitimate, honest, well-run small quid-pro-quo imposed on the Crown dependencies trustees face obliteration because of the unwritten in return for these benefits was to stop taking clearly manifesto. I have seen the human toll of bullying by dirty money and stop selling tax-evasion schemes. a well-financed regulator. That means that anybody wanting to provide On the other side of the equation is the “too services in Crown dependencies (those with which big to fail” syndrome. I remember some years ago I am familiar, anyway) has to have rigid KYC “gift-wrapping” for the Regulator and the Attorney procedures so they know who the clients are, where General in a $40m fraud case. When I say gift the money came from. Any politically exposed wrapping, I mean that parts of the case had been persons (PEPs) must be flagged, and woe betide the through a New York court and could be proven. provider who does not carry this out. If there were It was an obvious fraud; the offshore service a similarly well-enforced regime for lawyers in the provider had a valuable asset and two clients; it City of London, pandemonium would break out decided to give the asset to the favoured client, overnight. without telling the other. Nothing came of it; not Unfortunately, problems remain. The regulators a word from the Attorney General or the regulator. offshore have two sets of standards; the first — the So, offshore regulation: does it work? After a unwritten manifesto — is to exterminate the smaller fashion…
