A Delicate Affair - Part I

A DELICATE AFFAIR - Part I
Beginning a new series where our own offshore banking consultant, Peter Macfarlane, writes in-depth about real life case studies from his files and real life solutions to difficult problems implemented for clients. Of course all identifying details have been changed to protect the clients’ confidentiality, but the essential facts are here.
In this first case study, Peter Macfarlane covers legacy IBCs (International Business Corporations). What should you do if you are the owner of an older IBC but have done nothing to protect yourself against the new, intrusive laws coming into effect around the globe?
”Here’s my problem” writes the client, dated June 2004. “About seven years ago I had a big-shot solicitor in London set up a Turks and Caicos (TCI) IBC, which was to be the owner of a trust I set up prior to leaving my country of birth, Canada. The IBC was being administered by a large, well-known firm which runs a lot of ads in the Sunday papers.
“In the process, I realized that the London solicitor wasn’t much interested in helping me as I was just small fry. So after this deal was completed, I did not remain in contact with him.
“Anyway, that same year (1997) I flew to the TCI and got the IBC’s bank account set up with what was then known as Barclays Bank. I was the sole signatory. Additionally, I had papers drawn up making me signatory at another account at Barclays - this one in Douglas, Isle of Man.
“Everything rolled along smoothly until last year when the bank’s administration was taken off the TCI and moved to Barbados. Barclays joined forces with a Canadian bank to create a new bank called First Caribbean International Bank. Naturally, since I am a Canadian citizen, this was already bad news. I had gone to great lengths to open an account at a bank which would not be subject to Canadian government pressure, and here I, suddenly, was banking with a 50% Canadian-owned operation.
“But worse still, at this point they started emailing me questions about who was the beneficiary and where were the bearer shares. I demurred, of course, because the only reason for a bearer share company is for such information to be secret.
“Then, a couple of weeks ago, a letter reached me via a distant mail drop, giving notice that they had frozen the IBC’s bank account. I called them on my anonymous cell phone at great expense and talked with the guy who said he was in charge, but got no useful answers. He said he would check things out and get back to me by email the next day.
“That was about two weeks ago and I’ve now emailed him reminding him that he had not contacted me at all.
“Now what am I to do? I could contact those with the big advertising budget that were supposed to be administering the company, and ask what the hell is going on. Or I could try to get the big shot solicitor to intervene. I’ve already contacted the Caribbean branch of the management company, asking questions by email, and have gotten no response. They failed to cash the check I sent them for annual services back in July and just mailed me another notice that my account is past due. I feel that the goon I’ve talked to there a few times has no knowledge or authority whatsoever.
“I’m frustrated. About $300,000 has been commandeered and I’m afraid they are going to try to take over the account in the Isle of Man, too. I’m eager for any advice you have to give. And it’s urgent!”
Peter Macfarlane answers:
Unfortunately, these days, this client’s situation is not unusual. I receive many emails like this.
The thing to realise is that traditional offshore banking the way it was even back in the late nineties has gone out of the window. Of course, things were changing even then, but September 11th was really the catalyst - or, to be more accurate, the pretext that Big Brother was looking for. Anybody who made banking arrangements before 2001, and who has not reviewed them recently, definitely needs to contact, or preferably visit, their bank for a chat, before things get as bad as they have for this client.
In the old days, it was not the banker’s job to ask questions. It still isn’t, I say. But we have to be pragmatic. Undercover PTs don’t want to be seen to buck the trend. If you want to keep a bank account for an IBC at a bank in a first class jurisdiction, there is just one way to avoid having your accounts closed. That is via a personal relationship, with a regular two-way information flow between the banker and the client. No anonymous cell phones. The banker has to be sure that, if his compliance department or onshore correspondent bank has questions, he can immediately get hold of someone on the phone who will give him sensible, coherent answers.
In other words, you have to make sure you are up-to-date with providing your bank with all the information they need to comply with new regulations. If you appear to want too much privacy, that is defined as suspicious activity which is to be avoided at all costs. These days, ‘transparency’ is the buzzword in offshore banking.
Basically, they want to know everything. Who you are. What you do. What company you work for. How much you earn. Where you sleep at night (and proof of it). Who you sleep with at night. How many children you have. Then they move on to the IBC’s business: whom you are receiving money from and sending to? Why and what for? You are expected to write on the memo field of each transfer exactly why you are sending or receiving money, and be prepared to fax copies of contracts, invoices, etc. to back that up.
You really have to tell them the truth because even little variations can result in your account being blocked. If you tell them you are in the shoe business and then a payment arrives for a container load of socks, your bank will be unhappy. Why? Because you failed to tell them you are in the sock and shoe business. Many banks really are that strict these days.
As for bearer shares, in most jurisdictions they have now been outlawed. Nearly everywhere, they are history. Of course, the management company to whom our friend has been paying annual fees to all these years should have told him this and made alternative arrangements for the shareholding. But they didn’t.
In my experience, those that spend the most on advertising also offer the worst service. They are slick marketing operations with salesmen working on commission, rather than the qualified lawyers and accountants you really should be dealing with. At the beginning, they will be looking to sell you all kinds of expensive extra services. If you don’t buy, they will lose interest in you after a while. Some low-level secretary working for a third-world salary will be charged with the administration of your company.
So what is our friend to do, to get his $300,000 unblocked?
Well let’s look first and what he should absolutely not do.
First and foremost, he must not create ambiguities that will be difficult to wiggle out of later. A lot of clients faced with situation tend to tell outright lies, claiming that their money is from an inheritance or sale of property, for example. But that’s probably not a smart thing to do, because our friend will definitely be asked for documentation about what will doubtless be a long chain of requests for proof of original source of funds, who signed what and why, why ‘suspicious means of concealment’, like bearer shares, were used - etc., etc.
Secondly, he must be not be rude. Sometimes it’s hard to stay calm. In another case I know of, a client spent about two months of horsing around with a bank in one of the British Channel Islands. At one point, early on, he actually got so angry at the bank’s ‘compliance officer’ that he swore at her on the phone and she hung up on him. No doubt this made the task of recovering funds more difficult.
He was personally ‘interviewed’ by a local branch manager in another country from the same international bank. It was a close call because he was unable to renew the particular second passport that had been used to open the account some ten years previously. But, fortunately, he was able to waltz around that issue by showing plenty of proof that he was the original owner, including all past bank statements from the account. Finally, after the local bank manager called her himself and explained that ‘fiscal nomads’, like the client, owned big yachts, were not criminals and were common in his upmarket seaside catchment area, the bank finally released the funds.
As I see it, in our case, the client is left with two possibilities. One is to open up, come clean, and answer all the bank’s questions truthfully. The bank is looking for criminals, and even today, it’s not a crime in most offshore countries to hide money from tax authorities or ex-spouses, etc. If that’s what he was up to, it’s probably best to admit it. The bank will close the accounts, but he’s very likely to get his money back in full and his story probably won’t leave the bank.
The other alternative is much more complicated, much more expensive, and not recommended, except in exceptional circumstances. That is to find a straw man who will step in and act as a ‘professional director’ of the company. That will probably be a qualified, professional person who will be able to answer the bank’s questions, legally representing the company in its dealings. Probably this person will need to fly to the bank for personal meetings. We’re not talking about a dumb nominee or paper director here. We’re talking about a real, intelligent person who is experienced in dealing with banks and who is prepared to put his neck on the line by taking what is effectively personal responsibility for the company’s past dealings. It will be his job to tidy up the books, bring the share registers up to date, and generally make the company look as transparent as possible. And make it look like you are not the one in the driving seat.
Naturally, people like this don’t come cheap. So, it’s really only a solution of last resort where a lot of money is on the line.
Now, I know a few readers of this article might be in similar circumstances. I hope not too many. If you’re one of the many people who have similar arrangements but have not yet felt the heat from your bank, now is the time to anticipate it! It’s easier to make preparations and take the appropriate course of action before you have problems. In this case, what should you do?
Anticipate that your bank will require full disclosure, and paper evidence of past transactions. Decide on whether you want to be open and present a squeaky-clean image to the bank. If so, pick up the phone, make an appointment to meet, in person. Tell your bank manager you have heard about all the new regulations and you want to keep your account in good order. Ask what steps need to be taken. Banks love this proactive approach, and it will score you a lot of brownie points.
If, on the other hand, you decide that the above is not an option, instead start drawing down your account now through a series of withdrawals to another source. Read my past articles, the Q-File on Secret Banking, and any other good information you can get your hands on. If you can afford it, consult with one of the few experts in the field. You should be able to find plenty of solutions for anonymously stashing assets, even in this day and age.
In the next article in this series, I will cover, in a little more detail, some solutions which are still good. Panama and Liberia still allow bearer shares. New Zealand Charitable Trusts are a good, clean, low profile solution too. I recently ran articles about using other stores of wealth, like rare coin portfolios or diamonds and I have a few other Privacy Tools up my sleeve for the next article! Watch this space.