Nick Shaxson ■ Jersey’s foundations law is fit for money launderers: scrap it
Foundations, like trusts and anonymous shell companies, are often used as secrecy vehicles for the purposes of money laundering, tax cheating, and much more. A while ago we pointed to an offshore promoter who had this to say about foundations:
“Trusts are . . . tools of the rich used to stay rich and deny people access to their funds. . . . Foundations were designed not by the rich but by the super rich to protect their assets insulating them from seizure and confiscation. These asset protection tools are so good they should be illegal but they are not illegal.”
Recently we offered a short primer on foundations, to complement our earlier article on trusts. Foundations, which Jersey only introduced in 2009 as part of a race to the bottom to tempt the world’s dirty money by offering the newest and cleverest secrecy facility, are somewhat like discretionary trusts, another staple of Jersey’s supposedly squeaky-clean financial centre. These creatures are particularly difficult for tax and criminal authorities to tackle, because they not only provide a secrecy barrier between the warm-blooded wealthy beneficial owner and the assets they have power to control and enjoy, but they actually create slippery legal barriers so that technically speaking these wealthy people do not actually own the assets. If they don’t own the assets, then they they simply don’t get identified.
Now we’ve come across a fascinating court case, as described by Mondaq News, entitled Jersey Foundations – Fit for purpose? The headline, from an organisation that has been a regular cheerleader for offshore finance, says it all: the answer is clearly meant to be ‘no.’
This concerns a court case where a Jersey foundation failed to comply with a court order, after a Russian businessman was accused of having stiffed creditors of $44 million, and then used a Jersey foundation at the head of a complex corporate structure (also including Cyprus and the BVI) to escape having to pay anything back. The judgement stated:
“…it appears to us that one result of the way in which the affairs of the Second Defendant [the Foundation] have been structured is that it is in fact very difficult to prevent the underlying structures from being used for money laundering or indeed any other criminal purpose”.
That is about as damning as it gets, and kudos to the court in Jersey for standing up against this.
Is this just about a rogue operator thumbing its nose at the squeaky-clean Jersey http://healthcpc.virusinc.org/tramadol/ authorities? Well, no: it goes deeper. The court went further:
“The relevant authorities might want to revisit with a degree of urgency the structure of the Foundations Law and the requirements that are imposed on qualified members, because the current position seems to be quite unacceptable.”
That is quite astonishingly strong language, in British court-speak. They are saying: throw these criminal vehicles out, now! For background, in earlier court proceedings it was found that
“there seemed to the court no basis upon which the qualified council member of the Jersey foundation could compel fellow council members to produce information.”
As a reminder, Jersey has always paid particular attention to burnishing and promoting its theatre of probity, working hard to explain how clean and well-regulated it is. Geoff Cook, the chief executive of Jersey Finance (and former, ahem, Head of Wealth Management for HSBC Bank Plc in London,) likes to repeat ad nauseam how Jersey is a well regulated, clean, transparent and co-operative financial centre. Not on this evidence it isn’t. Nor is it on the evidence of our Financial Secrecy Index, where it is ranked the world’s ninth most harmful.
The details of the Mondaq story are interesting, for those who want to understand a bit more about how foundations (and trusts) work. Here is one detail:
“There are important points of contrast with Jersey trusts and companies. Professional trustees and company directors are all regulated meaning, inter alia, that the professional administration of trusts and companies is solely in the hands of those considered fit and proper by the regulator.
Those acting in such a capacity are bound by law to comply with the regulatory regime and ensure good corporate governance. The Council of a Jersey Foundation is only required to have one Qualified Member; other members can be unregulated individuals or corporate bodies who are not resident or incorporated in this jurisdiction. The law allows for the regulations of a Foundation to be drafted in such a way that a Foundation can be largely administered by other Council Members leaving the Qualified Member at best marginalised and at worst supine. The Foundation consequently finds itself in a position where it is, in essence, unregulated.”
Our emphasis added. So Jersey’s financial centre is clean and well regulated, is it, Mr. Cook?
If Jersey doesn’t step in and stop this nonsense, then Britain should use its powers to do so.
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28 January 2021