Offshore Entities

OVER THE PAST 30 years, the number of offshore zones offering financial services proliferated. The growth of the offshore financial sector is routinely attributed to increased financial regulations, and higher taxes imposed on account holders in industrial countries. To avoid the scrutiny of regulators and lower tax burdens, Western firms and wealthy individuals relocated significant portions of their financial activities to offshore markets, which promise enhanced secrecy and client confidentiality with financial transactions conducted through offshore entities.

By some estimates, more than half of the global financial transactions pass through offshore centers, and nearly 20 percent of total private wealth is invested in offshore financial centers. Offshore financial centers also routinely offer an array of tax and regulatory incentives for non-resident investors. For individuals with significant assets, a number of jurisdictions, such as the Bahamas, Bermuda, the Cayman Islands, the Cook Islands, Gibraltar, and the Isle of Man, permit the establishment of offshore asset protection trusts. Individuals establish an asset protection trust by transferring ownership of financial assets to a trust that has only foreign trustees. The trustees, who have no formal office, manage the trust property through the offshore zones.

Asset protection trusts changes the character of the assets held by the debtor from one that can be easily seized and sold, to an asset that the creditor cannot legally seize and sell. When creditors attempt to seize assets, even if they discover the offshore trust, a foreign trustee, who is most often uncooperative during the investigation, holds the funds.

For example, courts in the United States have no jurisdiction over foreign trustees, and therefore are unable to provide any relief to creditors. The actual geographic distance between the creditor and the trustee also poses significant barriers to creditors, and law enforcement and regulatory agencies. Asset protection trust corporations routinely advertise their services (a means to avoid frivolous litigation, and seizures of funds by government agencies) for an initial cost of less than $1,000 for minimal trust protection, or more than $30,000 for complex trust protection schemes.

Individuals can also establish an offshore corporation, an entity recognized by law as a separate “person” with limited liability. Offshore corporations may issue shares, raise capital, make contracts, and maintain checking and saving accounts. Like the asset protection trusts, offshore corporations provide limited information to law enforcement and regulatory agencies. For example, under Panamanian law, the names of corporate officers, directors or shareholders are confidential, and not filed in the public registry.

Another financial instrument offered by offshore financial zones are bearer share certificates, which do not indicate the name of the owner of the certificate. Bearer shares facilitate the transfer of assets by permitting the transfer of ownership simply by the transferring of the certificate to another individual. Some offshore centers mandate that corporations issue only registered share certificates, that have the name of the owner on the document. But [Page 582]corporate records, which record the registered owner of the certificate, are an internal document available only to directors, officers, and shareholders. No public registry of shareholders is maintained. Offshore zones also routinely offer customers the services of shelf companies, corporations that have been created to meet a client's immediate needs. The shelf companies only require a registered local agent who receives legal documents on behalf of the owner of the company.

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