CTS Gatekeepers for Onshore Governments?

The dramatic hardening over the past decade of government attitudes to the way that a string of financial services providers run their business has created new problems and a massive volume of extra work for Gibraltar firms and particularly for local accountants, lawyers and banks who manage trusts or trust companies on behalf of their clients.

Driven by concerns about money laundering, the outflow of invest ments from high-tax to low-tax ha vens and, at times by sheer politi cal expedience, jurisdictions have tightened their regulatory proce dures — often stringently — de manding greater "transparency" in terms of company accounts and in formation about directorships as well as a tougher"Know Your Cus tomer"(KYC)regime.

Spearheaded by the O.E.C.D. whose membership comprises high-tax countries and which wields a "blacklisting" cudgel over non-compliant jurisdictions — and the Financial Action Task Force,the anti-money laundering arm of the IMF, offshore jurisdictions have born the brunt of these campaigns; while the implementation of EU measures such as the IV and Vll Di rectives have added to the burden of Gibraltar and have sent tremors through centres as far apart as Jer sey and Bermuda or Labuan and the Isle of Man...

And the effects have been wide spread,for as well as triggering con cern among the authorities of off shore financial centres, the mo\'es have led to a re-assessment by most international banks and legal and accounting networks of the risks in volved in providing corporate and trustee services(CTS)... particularly when these are off-shore — where CTS activities often form a signifi cant part of a firm's business.

For, while in most offshore juris dictions the notorious days of the brass plate companies(and the easy annual income these generated) have ended, firms continue to pro vide CTS and,in effect,run the com panies. Their clients are often little more than passive shareholders or beneficiaries of the companies or trusts.

The intensification of the war on money-laundering over past dec ade hasseen a significant shift in at titudes towards CTS providers in off-shore regulatory circles. Where once many authorities tolerated the incorrect notion that directors pro vided by corporate service provid ers were "nominee directors" — a somewhat nebulous term — the new regulatory thrust is to make company managers and trustees the sentries in the campaign.

Intensification of the war on money-launder ing over past decade has seen a significant shift in attitudes towards CTS providers

At the same time a series of highprofile cases in onshore courts has debunked the concept that a nomi nee director can reduce or deny his responsibility for a company, and off-shore regulators have shown that they no longer will accept claims that a director is merely a "nominee".Some have gone so far as to bar the use of corporate direc tors, insisting that at least one lo cally based person should take re sponsibility for any company's mis demeanours.

In fact, offshore courts have al ways imputed a high degree of re sponsibility to,and have demanded a high level of ethical behaviour from,trustees. Nevertheless,seen as vulnerable targets by the big on shore players,offshore jurisdictions have tended to become convenient whipping boys in a game where the field is not level and goalposts are frequently moved.

For instance,all offshore jurisdic tions require extensive—and some times even over-zealous — KYC procedures before a company can be incorporated or allocated.

In America,on the other hand,no questions are asked by most com pany incorporators. Similarly, in most off-shore jurisdictions any per son acting as a professional trustee must obtain a licence and is then closely regulated, while in Britain anyone can act as a trustee and needs no official approval to do so.

Where, before the introduction of anti-money laundering legislation, its is probably fair to say that many off-shore CTS providers were less than diligent in their KYC proce dures, this no longer holds. Most have tightened their KYC require ments and certainly in the case of Gibraltar these are more stringent than those applied in most other fi nance centres.

In fact, money launderers are to day more likely to use London or New York — where there is a rea sonable chance that illicit transac tions will be lost in the huge daily volume of legitimate business than risk the sharper(and more fo cused) eyes of CTS providers and regulators in off-shore jurisdictions.

The issue has also been clouded bv an almost indecent willingness of the bigger players and interna tional bodies to lump together money laundering and "unfair tax competition",treating them as a sin gle target to be attacked, secure in the knowledge that they will have widespread support for their oppo sition to the former. in fact, the two issues are sepa rate and largely unrelated. For while almost all offshore jurisdic tions are anxious to eliminate money laundering — indeed, their AML legislation and regulatory practices play a significant part in how they are viewed by the inter national financial community few are willing to abandon the prin ciple of strict customer confidenti ality.

Given added impetus by the glo bal war on terrorism spearheaded by the US and Britain in the wake of the tragic events of 11 th Septem ber, the drive to prevent the move ment of illegal funds has also wid ened the perimeters of the potential minefield though which financial service providers—bank staff, pro fessional managers, accountants and lawyers — must pick their way. They have become the gatekeepers charged with identifying and re porting money laundering activities — the definition of which has also been widened.

For instance, Britain's new Pro ceeds of Crime Act (which came into force in February) lays down that the offence of money launder ing is committed if a person con ceals, disguises,converts, transfers or removes from the UK criminal property; if he becomes concerned in an arrangement that he knowsor suspects — a significant twist, this — facilitates the acquisition, reten tion,use or control of criminal prop erty; or if he acquires, uses or con trols criminal property.

It's a broad butcumbersome pal ette, and one of its effects is to cat egorise as "criminal property' funds received in Britain represent-] ing the benefits of an off-shore tax arrangement — which is perfectly legal in the off-shore finance centre, but if made in Britain would be re garded as criminal tax evasion. Similarly,simple nominee arrange ments that rely on non-disclosure could also fall under the Act's defi- nition of money laundering.

"It has become more vital than ever that both onshore introducers of business and off-shore adminis trators are comfortable that off shore tax planning arrangements would be considered as'avoidance' and not'evasion'by the tax authori ties/'says a leading Gibraltar-based international tax accountant.

"Working out what enquiries should be made and where to draw the lino will prove a headache for financial service providers, includ- conviction failing to report suspi cion carries a maximum prison term of five years.

So a person who may be too pre occupied — or over-burdened by work — to make the relevant checks... or who may have been careless,lazy...or even who is tem peramentally inclined to give a cli ent the benefit of the doubt could find himself or herself facing a prison term.

And the position of CTS provid ers as wilting or unwilling "gate-

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Here keepers" for onshore governments could become even more onerous as the high-tax regimes tighten the screws with increasingly aggressive tax-avoidance legislation that re flects their concerns about the grow ing mobility of business and the in ternational spread of e-commerce transactions.

Changes at Turicum Gibraltar

brought a shift in focus.

"There is no change to our ex isting philososphy which is to pro vide the best possible tailor-made advice to clients," says Urs C. Huni who has taken over the helm from Fritz Stucke as chief execu tive officer. "We uphold tradi tional Swiss private banking val ues such as confidentiality and continuity and maintain a very personal and long-term relation ship with our clients," he adds.

Huni,whose employment with Credit Suisse included spells in Brazil and Argentina before being posted to Gibraltar, was instru mental in the appointment of two other former Credit Suisse staff members to Turicum in Gibraltar.

Following the appointment of three new staff members at senior management level Turicum Pri vate Bank is to expand the scope of its operations in Gibraltar and among the expatriate communi ties in nearby Spain. The Rock's arm of the Swiss-owned institu tion, which epitomises the lowkey practices for which the Swiss banking system is renowned, will for the first time look to attract lo cal clients as part of its activities.

In the past the Gibraltar arm of the bank has relied for its business solely on clients introduced by its shareholders, but the injection of new blood — all three newcom ers were previously employed by CreditSuisse's local branch—has

Andreas Businger and Mario Fabbri have joined the local team as senior investment managers.

"We believe that as independ ent private bankers much of our strength lies in the fact that in pro viding advice to clients we can re main independent," Businger ex plains. "We are not tied on any particular product and can hon estly try to choose the best possi ble solution to meet the needs of individual clients."

"Turicum Gibraltar is very comfortable with its existing client base and with local regulatory practices," Huni adds.

"Regulations here are strong, but Gibraltar is by no means overregulated."

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