Yesterday's offshore services:
Appointing a nominee director or shareholder is a common practice -- not just amongst those who like to keep their names out of the paperwork. But if confidentiality is your main reason, be sure to get what you pay for.
The intensified efforts by onshore authorities to access offshore data and identify those citizens with offshore holdings have resulted in a run for cover. As the strength of traditional legislative barriers is being tested, it has become the norm to seek supplementary defences.
The appointment of nominee directors and nominee shareholders is so wide amongst clients of offshore services that virtually all offshore incorporators will offer this service, either themselves or through a third-party management company.
What you don't realise
Offering nominee services is a profitable option for any offshore incorporator. In addition to the flat annual fee you pay for keeping your name off the records, they will charge a per-task fee for any transaction you request they execute on your offshore company's bank account. (Where most will bill a flat per-transaction fee of about $10 to $20, some are known to charge a percentage -- as if the difficulty or time spent preparing a transfer order somehow depended on the amount involved!)
Privacy then costs -- but what if you don't even get what you paid for?
Putting easy profits above principles, many incorporators fail to tell you that using their nominee services might provide no extra privacy at all: Ever greater number of offshore jurisdictions now require that the details of true beneficial ownership be disclosed to them. Quite naturally, employing nominees in such a case is all but useless.
When challenged on this point, some incorporators argue that the beneficial owner details are only held by the offshore government and are not made public -- as opposed to the directors' and shareholders' registry which might be open to public scrutiny, they might add.
1. First of all, jurisdictions that do place their corporations' officers and shareholders on public file should never even be considered "offshore" from a privacy point of view. What benefit do you derive from using an offshore corporation to shield assets if anybody can look up your name against the corporation's name?
2. Nominee services should provide a second layer of privacy protection, not first. Using nominee services to compensate for a jurisdiction's lack of privacy provisions (as per point 1) is bad advice -- it is rather like getting an alarm installed because the door to your house will not lock. Fix the door first -- incorporate elsewhere -- then employ nominees to provide the additional barrier of protection against would-be intruders.
3. Despite assurances regarding the confidentiality of any beneficial owners' register, experience has taught the author of this article to exercise caution with respect to all governments -- both onshore and offshore. A "if they don't know, they can't tell" is an appropriate line of thinking here.
Will your defences stand?
Before blithely accepting the logic of a nominee-administered structure, you would be well advised to question your offshore services provider as to the actual privacy benefits. You might be surprised to learn that it might be necessary to make a complete and total disclosure regarding beneficial ownership. Perhaps it's time to look elsewhere?
If you are serious about protecting your financial privacy, additional considerations need to be taken into account with respect to nominee-administered offshore structures.
The nominee's own domicile / jurisdiction needs to be considered, in particular what legal protections exist to confound any legal actions mounted to force the disclosure of beneficial ownership.
From an asset protection point of view, the strength of any offshore structure must always be judged in terms of how many legal manoeuvres (court orders) would be needed to arrive at the final destination and seize assets.
The level of protection increases in direct relation not only to the number of steps that need to be taken to reach the litigant's goal -- your assets -- but also the difficulty of each step. What is needed is a metaphorical mountain assent, and not a stroll in a meadow.
Of course, the same principle applies in cases where the primary concern is the effective preservation of confidentiality of beneficial ownership.
A handful of corporate administrators offer the option to appoint their corporate nominee -- that is another offshore entity existing solely for this purpose, constructed with the deliberate intention to frustrate any legal attempts to extract information from it. Such corporate nominees typically make use of multi-jurisdictional laws (regulatory arbitrage) to provide practically impenetrable defences for those who seek this level of protection.
But this approach is not at all usual -- the opposite is.