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Offshore asset protection:
Keep it confidential

Confidentiality is the basis of any asset protection strategy - not all offshore havens will do. But where you incorporate is no less important than how you do it.

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with Peter Widder

When it comes to the incorporation or purchase of a typical offshore company, the majority of people approach an offshore company formation agent who will handle the work in return for a fee.

It all looks deceptively simple: you fill in an application form, send it off with whatever other paperwork may be requested by the incorporation agent, pay them, and in not too distant future your corporate package arrives.

Suddenly, you might think, the gates to asset protection, offshore privacy, tax-free trading or whatever else have been opened to you in exchange for a mere few thousand dollars!

But this is rarely the case. A little common-sense was needed even before the war on offshore began; today, at the dawn of a very new offshore age, smart thinking and an open mind are essential preconditions of incorporating offshore for asset protection.

Confidentiality: The basis of offshore
asset protection schemes

Asset protection is a complicated business; it is almost impossible to give any guidance without looking at the pertinent circumstances of each individual situation. Nonetheless, there is one aspect that all offshore asset protection strategies should pay attention to: confidentiality.

Although confidentiality by itself should not be the only defence against would-be creditors, it must be of the foundations on which we build an effective asset protection scheme.

The reason is simple: Whoever the prospective claimants might be, government or private, their goal of seizing assets becomes a whole lot more difficult if they can't find the assets to start with.

Following a few simple guidelines before, during and after incorporation of your offshore company is the wise thing to do.

The location of your incorporation
agent matters

Think twice before giving your business to an incorporation agent based in your home country. It's no use incorporating in a secretive offshore jurisdiction if the details of your offshore company, together with your personal client details, remain on file "at home".

Offshore incorporation agents to be included under customer due diligence rules.

New demands by the Financial Action Task Force on Money Laundering (FATF) include a clause requiring that offshore incorporation agents carry out detailed inquiries into customers' affairs.

(D. Godschalk, June 2003)

Remember, the incorporation agent's offices fall under the jurisdiction of your home country. What if authorities obtain a warrant to enter and search the incorporator's offices in connection with, say, improper dealings of another client? You bet they are going to make off with whatever paperwork they find, your file included!

In any case, do you have any control over how secure, and confidential, the incorporation agent's files and offices really are? Are you sure that all their employees, including low-level employees or ex-employees, cannot be incited to share information with outside parties?

If at all possible, incorporate through a company based abroad. Ideally, look for an offshore provider in a country that is unlikely to be particularly co-operative with your home country.

Your offshore communications:
Keep it private

Consider how you are going to communicate with your offshore incorporator, company manager or your offshore bank. Telephone records are pretty much permanent, and corporate packages -- often containing unnecessary but large and heavy "luxury corporate kits" -- are bulky enough for customs officials to have a good look at.

If your reason for incorporating an offshore company is to put away a important portion of your assets, you might want to think twice before casually picking up your house phone and calling the Caribbean, or having exotic paperwork delivered at your front door.

Such precautions might seem extreme now, but you might be glad you took them when claims for your assets arrive.

Where to incorporate:
Anonymity vs. confidentiality

Not a long ago, the choice of jurisdictions offering anonymous offshore companies was plentiful. In many offshore jurisdictions, companies were not required to disclose their registers of directors or shareholders to anybody, not even to the authorities of the country of incorporation.

The benefits of such corporate anonymity for asset protection are obvious: with no public records for anybody to pry into, outsiders are unable to discover, let alone prove, a relationship between a company (with all its assets) and its owner.

Not surprisingly, the number of offshore jurisdictions with legislative provisions for truly anonymous companies has been greatly reduced in recent years.

Nowadays, increased diligence on your part is required to ensure sufficient protection -- and this begins with the informed choice of an appropriate offshore jurisdiction. Some of the past favourites have changed so dramatically that they are no longer an option for anybody serious about privacy.

Do not carelessly accept the advice of your offshore incorporator who might have a commercial interest in selling particular jurisdictions. Do your homework, and check legislation independently. Be aware of what information will be available to whom. Does the offshore government hold details of company owners? Is there -- God forbid! -- a public register available?

In other words, make certain that your identity will be safely protected before you casually put your name on whatever order form your incorporation agent gave you. Beware assurances of complete confidentiality -- you might not get what you have bargained for.

Do not forget that true corporate anonymity is fundamentally distinct from corporate confidentiality:

• True anonymity means that nobody outside of the corporation is aware of the identity of its owners and managers.

• Confidentiality, on the other hand, usually means that the identities of company shareholders and directors are known to the government of the offshore jurisdiction in question. This information, however, is held as confidential. In effect, you have to trust the offshore government to keep quiet.

And here lies the danger. Ask the many Americans who put their trust -- and their money -- in The Bahamas. Under pressure, the Bahamian government in 2001 decided to talk: it threw non-disclosure out of its offshore legislation and even agreed to share information with the IRS!

(Fortunately, Bahamian offshore companies had been anonymous, so there was not much to report to Uncle Sam about their owners. In contrast, people who had held a Bahamian bank account were not so lucky.)

But lessons have been learned from the past. Today, offshore companies formed for asset protection almost always include professional nominee shareholders and officers. This allows the owner's identity to be shielded in jurisdictions that lack sufficient privacy provisions, but it increasingly also serves as a safeguard against sudden legislative changes in those havens that still do enjoy legal privacy.

It should be noted that offshore trusts are also a favoured device for the ownership of shares in cases where confidentiality is an issue.

If, for one reason or another, you absolutely must have shares in your company issued to your name, or be a director of the company, be sure to give your business to one of the jurisdictions that has a consistent record of non-cooperation with outsiders.

Those sloppy enough to put their faith in whatever offshore haven first comes to their mind needn't bother incorporating offshore at all -- what's the use of shielding your assets behind a company that might eventually be linked back to you? You would be better better off catching a flight to Switzerland and opening a simple personal bank account instead. After all, the Swiss have a fairly consistent record of non-cooperation unless your money is criminal.


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