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Library of Congress Cataloging-in-Publication DataCornez, Arnold.The offshore money book : how to move assets offshore for privby,protection, and tax advantage I Arnold Cornez.-2nd ed.p, cm.Includes index.ISBN 0-8092-2517-41. Tax planning-United States. 2. Estate planning-United States.3. International business enterprises-Law and legislation-UnitedStates. 4. Tax havens. 5. Foreign trusts. I. Title.KF6297.5.C67 2000343.7304--dc21 99-36082CIPThis publication is intended to be an accurate, academic, entertaining, and educational presentationon the very complex subjects of international financial matters, ideas, operatingstyles, theories, and related global topics. It is sold with the understanding that the authorand publisher are not engaged in rendering legal, accounting, or any other form of professionalservices. If ideas presented herein are to be used by the reader, legal advice andlorother expert assistance is required; the services of a competent professional person shouldbe sought.Caveat: Offshore finance is an extremely complex topic and a likely trap for the unwaryor unsophisticated-avoid the school of hard knocks! Some of the content may beconsideredcontroversial or too aggressive by some persons. By being presented, it is not in anyway being endorsed.The author, editor, publisher, and/or their agents and employees shall not be heldresponsible for any damages as a consequence of any party utilizing the materials containedherein.Cover and interior design by Rattray DesignPublished by Contemporary BooksA division of NTClContemporary Publishing Group, Inc.4255 West Touhy Avenue, Lincolnwood (Chicago), Illinois 60712 U.S.A.Copyright O 2000 by NTClContemporary Publishing Group, Inc.All rights reserved. No part of this book may be reproduced, stored in a retrievalsystem, or transmitted in any form or by any means, electronic, mechanical,photocopying, recording, or otherwise, without the prior written permission ofNTCIContemporary Publishing Group, Inc.Printed in the United States of AmericaInternational Standard Book Number: 0-8092-2517-405 MV 15 14 13 12 11 10 9 8 7 6

To JUDIE, MY WIFE.MY THANKS FOR YOUR SUPPORTDURING THE SOLITARY PROCESS OFWRITING THIS BOOK.

AcknowledgmentsIntroduction to the Revised EditionA Note from the AuthorTerminologyAre You a Reluctant American?The StructuresThe ParticipantsThe CostsInternational Services and Setup3 WHY GO OFFSHORE?Reasons to Stay OnshoreReasons to Go OffshoreGuidelines for Evaluating Offshore OptionsLegal Issues and TerminologyTransferring AssetsAPT Costs

Basic Offshore EntitiesWhat Can an IBC Do?IBC FeaturesApplying for Company Formation and AgreementAn IBC Comparison ChecklistOther Forms of CompaniesThe U.S. Living TrustThe Evolution of the TrustWho Needs an APT?The Parties to the APTA Trust with a Dual NationalityCostsTrust TerminologyTechnicalitiesIndustry TrendsThe Swiss Banking SystemThe Caribbean and Neighboring NationsOther Offshore Financial CentersOffshore Credit and Debit CardsGeneral Banking RulesPrivate and Numbered AccountsMonetary Policies and Exchange ControlsSwiss Postfinance ServicesOffshore Foreign Currency AccountsPrivate BankingPrivacy

Going OffshThe PrivateOffshore ExDemystifyinCitizenshiRenouncingThe Living TThe FamilyReal ProperProtectionThe UnincoUnincorpProprietaryContemporaThe Pure TrThe BusinesThe Pure EqProviding foOffshore ChBankruptcyForeign IncoDeterminingViatica1 SetForeign SalOffshore BeTax ImplicaTax on theSpecial TaxExcise TaxTaxes on A

U.S. Taxes on the IBC Investing in the U.S. Stock Market 174Tax on Renouncing U.S. Citizenship I I74IRS Requirements for an Offshore Principal Office 176Applicable IRS FormsI77Classifying Tax Havens Based on Tax Attributes 185Passport Review and Travel Agent RecordsTelephone RecordsFrequent Flyer ProgramsWastebaskets and Garbage CansComputer FilesBusiness AssociatesEncryptionCosts, Formation Fees, and CapitalizationTypical Statutory RequirementsGlobal Insurance Resource on the WebA Case Study: Putting the Pieces Together 201A Test for the Reader 203Avoiding Offshore Scams: Greed-0-Nomics IOI 204Pitfalls of Bribery 215Farewell to the Reluctant American 215Selected Tax Havens of the World 220

I WAS THE "coamost of the peomy team. Theydiscussions, butcredit for this rehave most gracwith me over thand this book iback" to thosegrape juice comlut; and from siences for grainMoney Book.During theonshore and oacknowledgmeVernon K. JVillage, Kansas.the complex issDavid S. LCanada. My thject of second p

xii THI O F F S H O R E tiOH[Y B O O KMy thanks also to the following for materials used in this book:Jay D. Adkisson, Esq., Irvine, CaliforniaE. L. Bendelow, Basel Trust Corporation, St. Helier,JerseyTerry Coxon, Petaluma, CaliforniaJ. Richard Duke, Esq., Birmingham, AlabamaBarry S. Engel, Esq., Engelwood, ColoradoL. Burke Files, Tempe, ArizonaAnd last, but certainly not least, my thanks to my loving wife ofnearly thirty-five years, Judie, who served as editor in chief (with dueapologies to Danielle Egan-Miller, my editor at ~~clcontemporaryPublishing Group, without whom this revised edition could neverhave been finalized). Judie was my unabashed critic and distant comfortduring the periods of necessary solitude for the research anddrafting of this revision-everything I needed my best friend to be.

So MUCof thisvices bing; yoDasions tneeds,. diversishoreretiremment ayou'reAiradvertiparadisThursdvate ofPacific

xivTHI O F f S H O l f HOHEY B O O KAdvertisements I have read make such claims as:"Making a tax-free fortune" ,"HOW to earn tax-free investment returns of 30 to 250 percentper year, year after year""How to earn tax-free income offshore for the next twentyyears"You be the judge of the veracity of these claims.The insidious growth of worldwide taxation of the "haves" drivespeople to seek out estate planning tools for tax reduction and wealthtransference, including sophisticated offshore structuring. Not to doso is financially irresponsible to one's surviving spouse and progeny.Offshore asset protection, privacy, and international financialplanning seminars abound. Unfortunately, they are mostly presentedby those service providers with a not-too-hidden agenda, wantingyou as a client. Which ones are good, and which skirt on tax evasion?While some, such as SHOREX (a must-attend show), are a greatlearning experience, your mere attendance at others offshore mayresult in an invitation to an IRS audit party. Would you walk aroundwith your name and city on a badge in Canc6n at a seminar?Absurd, but some people do it. -How do you avoid being drawn intothe shady side of the offshore world? Questionable structures andthe wrong service providers can cast an everlasting shadow on youand yours.As ambitious as it may appear to you (and even to me), thisrevised edition of this bestselling offshore money book will addressthese and other issues. I've tried to make the revised edition evenmore functional than the first. I have made an effort to be as neutralas possible and not show any unwarranted geographic biases.But I don't like Panama as a jurisdiction, so there-I've voiced myfirst bias. You'll ultimately need to retain a consultant who will tellyou the whys for some tax havens, but your reading this book willmake the consultant's job easier. After reading the book three times,I am told, you'll know the right questions to ask.Some readers have likened the previous edition to a fireside chat;I've attempted to continue in that vein. This book is intended for thenewcomer to the field, as well as the intermediate. If you need more

mi THE OFFSHORF HONEY B O O Krequired government consent, tripping over bureaucratic obstacles,or diplomatic efforts are being transgressed by elecfronic commerce.New working (and personal) relationships are being createddaily on the Internet. More and more offshore financial planningand asset protection newsletters are being published. Some are free;one costs $595 per year and is well worth it. I have acquired clientsworldwide over the Internet, not personally meeting them untillater in the relationship.It's easy to feel overwhelmed when first researching offshorefinances. Books and so-called informational websites abound on theNet. It's difficult to distinguish between the good and the bad, thetax compliant and the tax evader, the professional and the scammer.The fierce competition among the tax haven jurisdictions has thembadmouthing each other for the business. Offshore money is a profitcenter for many struggling countries, and in many cases the incomegenerated equals or approaches revenue from tourism. In Bermuda,income from the insurance business exceeded tourism starting inmid-1995, and in 1998 international business expenditures were $758billion, compared with visitor expenditures of only $472 million.New jobs in banking and financial services pay much more than serviceand maintenance jobs. International business is a proven boonto these economies, increasing per capita income and consumption.The old adage remains true: If it sounds too good to be true, itprobably is. Offers of tax-free income offshore are suspect, as aremultilevel marketing schemes selling offshore trusts coupled withVisa cards providing "tax-free" money. Promises of returns of 25percent a week should make you run to the nearest exit, but greedseduces people every day. Don't enter the shady side of the offshoreworld: once you've entered, reformation and tax compliance may bedifficult or impossible.I feel compelled to crusade against the fringe offshore community-thosewho' intentionally practice overly tax-aggressive methodologyor out-and-out tax evasion, those who use concealment andsecrecy as their primary tools, and those who scam the uninformedconsumer with overpriced and misrepresented products. The misrepresentationprincipally occurs with false promises of U.S. taxavoidance.

A Mote from the AuthorYou cannot discover new oceans unless you have thecourage to lose sight of the binding shore.IT IS REGRETTABLE that a public misperception that "sunny climesare for shady people7'-that offshore is for wheeler-dealers-persiststo this day. In this book, I attempt to counter it. Misconceptionbreeds fear, and fear begets reluctance. Hence, I originally titled thisbook The Offshore Money Book: A Comprehensive Guide for ReluctantAmericans. If that has a familiar ring to it, you are dating yourself.In 1958, authors Bill Lederer and Eugene Burdick penned thebestseller The Ugly American. It described a stereotype of the newlyaffluent-rude, arrogant, demanding, unskilled middle-class Americans-creatinga negative image of the U.S. worldwide. With apologiesto those authors, that first title for this book still appearsparticularly apropos, as the stereotype of the American going offshoreis a person who is timid and misinformed, yet still demanding.Unfortunately, the offshore professional must patiently educate theinexperienced, reluctant American before they can work together.This book serves that professional's need as well, and I hope it continuesto be favorably received in the offshore professional commu-

nitypetitiWa partrip,AmeFhapscomfrestrihomeavoidrespeand r(earnBthe mon bebrokelary:bers,trusts(APT)missiand mbest pbookYremaprobation.Ito thechangoffshmoneNegaxx

R HOTE FRO! THI R U T H O A xxiThe Firm, tarnish the image of the tax shelter too. Yet there are thousandsof honest hardworking professionals managing unknown trillionsof U.S. dollars in global funds in the world's internationalfinancial centers (IFCS) on a daily basis. Notice that I use the wordmanaging, since the actual money is probably parked in London,Tokyo, or New York. Banking, asset and portfolio management,trustee and company management income derived from these serviceshas far surpassed the income from tourism in many countries 'that were formerly just vacation destinations and near destitute. Taxhavens are racing to elevate their stature in the world financial community,to be characterized as international banking and financialcenters, to attract clean money, and to not be just another lower-tier;third-world tax haven in some obscure, exotic locale.Among the many questions asked of me in the period duringwhich the prospective client and I evaluate each other (yes, it's atwo-way street), are "How can 1 trust those people offshore? Arethey going to run off with my money?" or such blunt variations as"I trust you Arnie, but you're no kid-what happens if somethinghappens to you?""I vet clients quite thoroughly since I don't want to be drawn intoany unsavory or illegal scheme or a fraud on a creditor-I don't wishto be anyone's unwitting pawn. Is there an undisclosed smoking gunin the client's past or future? Does he or she have a hidden agenda?Life is too short to play tax evasion, frustrate-the-creditor games orto turn a blind eye to suspicious conduct; I don't want to get involvedand end up wearing a striped suit in the federal country club.Trouble often comes where you least expect it. I was contacted bySante Kimes, who needed help moving her assets offshore. Mrs. Kimessounded like a sweet little old lady, and her adult son lived with her.She called me twice at my home, sweet-talking at great length andencouraging me to travel to Las Vegas to meet with her and her sonfor a free dinner. Her son was apparently too busy golfing in majortournaments to visit me at my office. It didn't pass my smell test, so Ideclined twice-and I never heard from her again. Later, I discoveredthat she used the first edition of The Offshore Money Book as one usesthe yellow pages to locate the offshore people she needed. As it turned ,out, this "sweet little old lady" and her son were charged in an 82- -

xxii THE Oyear-old millpearance ofoffshore. AKimes's telepSo you cthe settlor antures. To avoinvolved takeshould requiletters of refFigures 1.1-1All this lissue of confinto your owthing:"Dad,doing, exceplonger?" Youyour client.countless biloffshore asseasset protectoital is out thethat are perpmeans of keeThe Cayworld. JohnIsland bank.mented thatIslands weresons (and anylack of confidout bounds, athe federal deby concernsand more powaccessible. Wand I can det

A H O T E FRO1 THE AUTHOR xxiiiFiqunple letterTo Whom It May Concern:I am an active member in good standing of the state bar of, and a member of the federal bar inam entitled to practice in all state courts inas some federal courts in[Name] has requested that I write this letter for his confidentialuse. I have known [name] for years, since 1 9 ~ Our . relationshiphas been [select one: exclusively professional or professionaland social].I have found [name] to be of very high character and fair in hisbusiness dealings. I am not aware of any unconscionable conducton his part. I have the highest regard for [name] and his talents.[Add further complimentary comment here, if possible.]I would be pleased to provide further references or responsesupon request through [name] to maintain the privacy of thiscommunication.It is a pleasure to assist [name] by providing this private letter

xxiv THi O F F S H O R E I O H E Y B O O Kmple LetterDateNameBusinessAddressTo Whom It May Concern:I am the senior vice president of [bank name], in good standingwith all licensing and regulatory agencies.[Name] has requested that I write this letter for his confidentialuse. I have known [name] for about -years. Our relationshiphas been [select one: exclusively professional or professionaland social].I have found [name] to be of high character and fair in his businessdealings. I am not aware of any unconscionable conduct onhis part. In spite of some of the difficulties he has experienced,he has conducted himself in an honorable fashion.Kindly contact me for any further information.Yours truly,[signature]

I am an active certifthe United States, inregulatory agencies.I have found [name]her business dealingunconscionable condcomplimentary comIt is a pleasure to bprivate letter of refeDateNameBusinessAddressTo Whom It May C[Name] has requesteconfidential use. I h19- . Our relationshprofessional or profeI would be pleasedrequest through [nacommunication.Sincerely yours,i[signature]

xxvi THt O f f S H O R l M O H l Y B O O KRampant litigation, outrageous jurysocial wealth reallocations, and threats ofindirect taxes on you continue. Some call inot a historian, but I recall some gems of iThe concept of in trust, which may haveian pharaohs, was refined in the early Greekfurther developed under Islamic law and in fwhen the English Crown attempted to natifor taxes") land belonging to their wealthyresponded by conveying their property to tback for life at the reasonable rate of a pepCrusaders did their "estate planning" (withtheir mission for the Church (or was it reallIn modern times, overly aggressive tax cRussia collect pots, pans, or anything else ta tax payment), political instability, and wtal. Stronger currencies encourage the fliSwitzerland briefly had a flight capital prowas not what you might think. The concernthe flight money coming into their country.tion of further flight capital, they introductive interest rates to stem the tide. It didninterest penalty was acceptable to those ntheir wealth.They say that flight capital from the U.Sprising rate (not surprising to me). Currentloffshore tax havens increases-and the pheues. American CPAS and tax lawyers have(tax compliant), protect their clients' assetsone step ahead of Congress and the tax cocash from the U.S. to offshore entities (forand business investments) is growing exponnumerous, and this book addresses them.But this book is primarily an attempt tworld and offshore finance for you, the Rconfidence you need by expanding your woative international estate planning and m

R N O T E F R O M T H i R U T H O R xmiioffshore vocabulary for family wealth conservation. As a businessperson,you need to react to global opportunities, or perish at thehands of your competition. As you go international, you will face aunique set of problems not encountered by onshore companies.A new vocabulary has evolved in the global business community,as well. The following terms will become part of this new lexicon:transfer pricing, advanced pricing agreements, branch profits,anti-conduit financing rules, upstreaming, and earnings stripping.This book does not present the offshore bank as a panacea forall your offshore needs, because that simplistic solution doesn't workfor most RAS. Nor are the offshore bank, the family limited partnership,or the family protective trust totally bulletproof solutions. .Each of you has a different agenda. There is no such thing as one sizefits all, a mass-production solution, or a kit. Beware of those peopleoffering a package deal that is intended to substitute for professionaladvice. If you accept that statement as a major premise, youhave mastered Step One. I discourage you from utilizing a consultantwho forces the square peg into the round hole. For example, anoffshore bank is not the answer for everyone. Don't allow yourselfto be hurried. I have seen clients take longer to proceed offshore -than the gestation period for a pregnant elephant.Step Two is the realization and acceptance that going offshoremay not be the solution for you. What are you trying to achieve bygoing offshore? A Nassau company formation acquaintance dis-,closed to me that about one-half of the Bahamian co.mpanies formedare not around for a second year..If it is not possible, not practical,not economically feasible, why go? If all your wealth is tied up asequity in U.S. real estate, your options are very limited. (See the conceptof equity stripping in Chapter 10 [page 1441, or exchanginghighly appreciated real property for an offshore private annuity[Chapter 9, page 1261.)During the course of drafting this book, I reaffirmed that thesteps for going offshore are not necessarily purely objective. Consequently,it could drive the objective side of your brain crazy. It's notsimply a matter of taxes or fears of being a potential litigation target.Look at the cost of asset protection as you look at the cost oflife insurance. You pay it, but don't ever want to collect.

xmiii THE OFFSHOREH O H E Y BOOKAccept that there is more than ooffshore. Exactly how you ultimatemay vary from advisor to advisor.jectivity, my first disclaimer wouldways of proceeding; many probablyfor you. Let's hope this book helpsleast, that after reading this bookquestions. The only dumb questiobook will help you formulate quesAlso, this book is not a detahavens, offshore banks and professcards, tax-avoidance techniques, anatively identified many tax havensis for you as an educational exercilook at the world's major tax havand other authors-Hoyt BarberStarchild, to name only three-havethe topic of tax havens. Althoughremain fine reference books. (See Arent books.)Halfway through the writingpretension. I must confess that I dooffshore. However, my personalknew more than you and had brilliteach you or at least guide you, ifThis book comes with due apojust in case I may have misstated sand I'll remedy the problem in timect is intended to be an evolving,Communication to me by E-shore@bahamas.net.bs, via mailBahamas SSI~~~I,or by fax to (2To further assist those of you wto be) and can surf the Internet, IWide Web (WWW) sites. I also refea more comprehensive listing of InAlthough the websites were confi

A HOTE FROH THE AUTHOR nixbook, they seem to change often. If the address is no longer current,you should do a search. The world is going high-tech, and ifyou still think that Java is only coffee, you'd best get on-line!For you "hands-on" paralegals who want to know everything,I have taken some of the legal terms and tax issues unique or applicableto the offshore lexicon and attempted to define them in everydayEnglish for you.Occasionally, attributes that I believe are favorable are identifiedwith a plus sign (+). Conversely, negative characteristics aremarked with a minus sign (-), or where really bad with the triplewhammie of (- - -). For example: long statute of limitations (-).Complex issues such as double taxation under multinational tax .treaties, although accepted as a reality of life, must be ignored in thisbook because of their complexities as well as limitations of space andpersonal knowledge. The subject of the formation of an offshoremutual or hedge fund is also beyond the scope of this book.I may have been overly ambitious in this book. For the first time,to my knowledge, an author has attempted to integrate the trilogy ofinternational estate planning, financial planning, and asset protectioninto one book and as one subject, offshore economics, as it ihould be.Most other authors have treated each of these three subjects in a partialvacuum. I trust I have not disappointed you in this effort.Simpler issues, such as how to legally outmaneuver the taxauthorities (euphemistically called loopholes), are addressed. All taxissues are indeed very important, but since they would require amore in-depth tax analysis and explanation than is appropriate inthis primer, I deem their complexity beyond its scope. After all, I'mthe author and I have license to say so. Perhaps that will be the topicfor my next book. . . .EndnotesI In some other tax literature you will encounter the abbreviationRA being used in reference to a resident alien.

Rn Introduction to the Reluctant RmericanTerminologyLET US DISCUSS terminology at the onset. If at any time you see aword you don't recognize, go to Appendix A for assistance. I usethe terms foreign, offshore, transnational, worldwide, global, crossborder,international, transworld, and multinational, in this book,but I'm not yet ready for the term global village. My preference isthe modern term offshore (os), a word being used by most of theglobal community. 0s is an international term meaning not only outof your country (jurisdiction), but possibly out of the tax reach ofyour country of residence, domicile, or citizenship. The term foreigncarries confusion, and I avoid it-except in Chapter 11, whereit is appropriate in the context of U.S. taxation and IRS reporting.For example, a Delaware corporation operating in California is characterizedby the State of California as a foreign corporation doingbusiness in California. The Internal Revenue Service uses a numberof tests to label a trust as a foreign trust. Some of the tests are:I. Under 1996 tax laws, a domestic (onshore) trust is onewhich is subject to the jurisdiction of a U.S. court.

2 THE OFFSHOR,t HOHEY BOOK2. It is a domestic trust where the primary supervision andcontrol is by one or more U.S. persons who have authorityto control all substantial decisions of the trust.3. Every other trust is a foreign (offshore) trust. Elsewhere inthe book I refer to a foreign trust as an asset protectiontrust (APT).All the IRS forms for reporting transfers offshore, parties to anoffshore trust, or offshore ownership of corporations are couched interms of foreign trusts. The terminology is inconsistent: the meaningsof some words differ depending on with whom you are speakingand the subject at hand. I will use the word foreign whenreferring to IRS tax forms and U.S. taxes for consistency with theInternal Revenue Code (IRC).Further compounding the terminology problem is the U.S.mutual fund industry's use of the terms global fund and internationalfund. A global fund is defined as a fund that invests in the U.S.and offshore, while an international fund invests only offshore.Offshore doesn't necessarily refer to some tropical island jurisdiction.Austria, Liechtenstein,' Ireland,z Monaco, the U.S;, Switzerland,Luxembourg, the Netherlands, ~ibraltar, and Andorra, toname a few, are considered to be offshore and, by some, to be taxhavens. It depends on who you are; your citizenship, residency, anddomicile; your source of income; your objectives; and favorable taxtreatment under double-tax treaties.The IRS has labeled numerous jurisdictions as being used primarilyto reduce tax liabilities and restructure income. In additionto the more commonly known or high-profile tax havens, the IRSincludes Bahrain, Grenada, Nauru, the ~urks and Caicos Islands(TCI), and Vanuatu.Are You a Reluctant American?You are a reluctant American if one or more of the following itemsapplies to you:

I. You believe that only tax cheats and crimplace some of their estate offshore for prfinancial peace of mind. (The word estatencompasses all of your assets-that is, yYou don'r have ro be very wealthy-or dean estate.)2. You have used the same domestic (U.S., oattorney and certified public accountantyears and you won't go to the bathroomhim or her first. This book encourages re(reclaiming) your financial privacy. You nwhat I have defined as "professional diveonshore and your offshore team of profesbook aIso encourages another new conceprivacy, which I have labeled "geographicis the time to diversify offshore. It's veryexisting professionals are very competenthave done for you to date, but most areyou offshore and are probably not honesyou so. They most likely know little of dbusiness matters on an international scalworried about malpractice lawsuits, andis to discourage what they don't fully unpotential liability rather than to encouragand open themselves up to the risks of pThey may be very comfortable prafessionto take on a new and very complex topicprotection using offshore vehicles.The initial personal planning, strategintegration with estate and financial planmethodology are at the heart of asset promost difficult phase by far. The easy parstructure in place.Presently, there is no professional obtiestate planner or other professional to encarea of offshore asset protection strategies

change! Hoconsultant,as a further(AP) tool anThey have abusiness cothese termscurrent profwill lose coperhaps eve3. You can't trmany U.S.banks in threserve requproud, andcommunity,into your ci4. You need tobe the king5. You can't enwithout act7. You don't thnumerous gthat you are"ostrich syndamages agcomplexityand 'litigatiothe legal pro4 1Ht O F F S H O6. You think yYou are no lonI. You can praabout yourand legally

R H IHTROOVCTIOH TO THE RELUCTRHT RtlERlCAH 5from prying eyes, potential litigants, and computerdatabases. (You can't conceal it all, since that wouldconstitute a fraud against your future creditors orclaimants.)2. You are comfortable with professional and geographicdiversity for your wealth conservation and management.You accept that law-abiding people go offshore with some(not all) of their wealth.3. You accept that there are other stock exchanges offshoreproviding excellent investment opportunities not affordedto U.S. persons. The word "person" as used in this bookrefers to an individual (including a third party or "strawman"), business, company, partnership, corporation, IBC,LLC (limited liability company), or any other entity withlegal standing recognized in the jurisdiction of its creation.4. You fantasize about spending some of your retirement timein a Caribbean condo or in Monaco and having yourgrandchildren visit you there.5. You're tired of the slow erosion of your personal privacyand you want to do something about it.6. You recognize that it is not only the other person who getssued, that litigation is rampant, and that it is not going toget better under the present U.S. legal system. (Pressureplaced upon Congress against tort reform by those whobenefit from the present system makes substantial changesunlikely.) With a surplus of imaginative attorneys creatingnew theories of liability, you must plan ahead for thatcontingency. This is especially important if you are in ahigh-risk profession and have the potential problem ofbeing uninsured or underinsured against a runaway juryverdict.7. You accept the new trilogy: you consider internationalestate planning, international financial planning, and assetprotection. And don't overlook two other factorstaxationand insurance.

6 THE OFfSHORE ROHEY BOOK8. You can intelligently discuss the subjects of offshore incorporation,use of nominees, departure tax or; expatriationplanning, global estate planning, asset protection trusts,wealth preservation and conservation, and asset and portfoliomanagement services.9. You find the income tax system unfair and incomprehensibleand believe that the IRS is out of control. You areaware of the differences among the terms tax avoidance,tax evasion, and the cute term betwixt the two tax"avaison." You know that the IRS has a tax havendepartment and monitors tax haven activities, but youare in compliance and can sleep at night. You knowwhere the fuzzy line is between tax avoidance and taxevasion and tread carefully. (I suspect that the IRS purchasesall the books on &ing offshore, too! I got a callone day from an IRS purchasing agent to buy my books,and she even wanted to put the purchase on the IRS'Scredit card.)10. You are not a control freak and do not need to make everydecision personally. If you are, no one can help you!11. You recognize that through knowledge you acquire power.What you learn from this book by keeping an open mindmay change your life forever!12. YOU feel insecure about the massive U.S. national debt, andthis domestic monetary crisis makes you hedge your personalfinances.13. You are willing to become more computer literate to harnessthe vast offshore resources available on the Internet.Just sample some of the sites identified in this book, andyou certainly will concur that it was well worth the timeand financial investment to get on-line.

AH I N l R O O U C T l O H TO I H E R E L U C TEndnotesI On a per capita basis, Liechtenstein is onecountries.2 Ireland is unique in that it is the only Europeantry that, as an incentive for tax haven business, offenonresident companies.

etting Started: Recognizing andOuercoming Your ConcernsTHERE IS MORE to going offshore than the act of opening up a privateand personal offshore bank account or forming an offshorecorporation. That's no big deal! Open a copy of The Economist andread all the advertisements from offshore banks wanting yourmoney, as well as company formation firms offering to create aninstant international business company (IBC) or exempt companyfor you. Such activities should be part of a bigger personal plan, atotal structure that won't be obsolete in a few years and can accommodatepotential changes in your personal life (divorce, marriageof children, birth of grandchildren, and so on) and your global businessneeds.Chinese philosopher Lao-tzu once said, "A journey of a thousandmiles must begin with a single step." The first step is to identifyyour concerns.What do you do? You can more easily find out what todo than how to do it. (A qualified professional willshow you the hows.)

Whom do you use for the different roles-the trustee,the nominee, the asset manager, the trust protector?How much do you trust them? How do you protectyourself from unsavory offshore people and companies?Where do you go? What's the difference between a taxhaven and an international banking center?How much does it cost to set up and sustain offshoreaccounts?Who will provide the international formation andannual services?6 What type of banking services are required (forexample, public versus private banking)?What type of flexibility is needed when establishingand administering the trust?If you've started and are already offshore, ask yourself the followingquestions:Why did you go offshore?Are your offshore arrangements legal and taxcompliant?Why did you select the structure?Is your current structure the best for you, both nowand in the future?What do you do now? How can you improve yourcurrent structure?The StructuresI use my own planning terminology in this book. I might state thatthe final operating structure is composed of individual entities orboxes. For example, the first entity (box one) is owned by box two,and box two flows into box three-that is a three-box or threeentitystrutture.Every entity has its place. The structure could flow from onshoreto offshore and back again using boxes or entities that can be oneor more of the following:

The international business company (IBC) or ancompany, a company incorporated within a taxbut not authorized to do business within the cof incorporation; the IBC or exempt company iintended for global operationsThe asset protection trust (APT) or the foreignprotection trust (FAPT)The family protective trust (same as the APT)The family settlement trust (same as the APT)The private investment bank (PIB), a bank notgeneral public bankingAnnuitiesThe private family or charitable foundationThe captive insurance companyThe limited-duration or life companyThe company limited by guaranty, the guarantcompanyThe real estate family limited partnership (FLPof the limited partnership (LP) for providing asprotection for the "crown jeweln' real propertThe offshore mutual or hedge fundThe limited liability company (LLC)The Nevada corporation with bearer sharesTimeshare resortsAnd these inadvisable structures:The unincorporated business organization (UBOa company treated as a trust for tax purposesThe business trust organization (BTO), the pureor the so-called Massachusetts trustThe common law or pure trust as a tax avoidaThe ParticipantsThe role of the offshore trustee remains the same as thatraditional onshore counterpart. However, the use of no

Co-signing ontrusteeJoining the trmanagers orReplacing theThe protector cThe risk of using anability or death of tI would strongly sugout including a trusttrust agreement), vaprotector may legallreplace the trustee,where these powersWhen in doubt,When an action tharequired of the trustprotector. A very pogiven enough powerand may even be a Uson as a protector imuch greater influenis where the grantorthis are usually toodates for offshore AP12 T H I OFfSHORIa traditional U.S. meshore nominees areofficers of the IBC fown and control anOnly the tax reportiThe control of the aThe role of trussimple terms, the prtrust assets. The dut

CETTIHC STARTED I3The asset, or portfolio, manager has a traditional role.' He orshe is appointed by a written contract with the IBC or the APT. It canbe a fully discretionary account, or limitations can be imposed by thecontract under the terms of the APT or by the officers of the IBC. Feesto the asset manager can be based on performance achieved or on apercentage of the valuation of the estate under his or her management.However, asset management can be obtained from qualityoffshore brokerage houses, which only charge the traditional bro- 'kerage fees and perhaps a small percentage of the portfolio as a discretionarymanagement fee.The os trustee is usually an individual or small trust companylicensed and regulated by the tax haven. This is directly contrary tothe domestic U.S. concept of using a commercial trust company,such as the trust department of a bank. There is no difficulty insecuring a high-quality, professional individual to act as the trusteefor the os trust, but this person will not assume the liability for U.S.IRC compliance and will hire an expert farfiiliar with U.S..tax filingrequirements.The Ruestion of TrustMistrust is probably the biggest deal killer for most RAS. If you can'ttrust your offshore professionals, nothing can help you! I am not asalesman trying to talk you into going offshore. My agenda is toraise your comfort level with the concept of going'offshore so thatyou at least reach a point where you will allow yourself to trust offshoreprofessionals, to heed their counsel and follow their advice.Your trust and confidence can be raised by a combination of thefollowing factors:I. Selecting offshore professionals is not a matter ofpicking out a name in the Isle of Man yellow pages asyou customarily select onshore services, but the phonebook does provide some guidance. I usually "borrow"one phone book from each country I visit.

14 T H E O f f S H O R E H O N E Y B O O Kz. You may initially rely on a referral from a U.S. consultant,but comfort comes with time. Take small sfeps andgradually build upon them as your acceptance levelincreases.3. Act on your gut instinct after listening to a speaker at aseminar who impresses you.4. Traditional standards of due diligence still exist. Don'texpect to be given references by the clients who have goneoffshore-obviously. But, inquire and expect professionalreferences from attorneys, CPAS, and others. And dofollow up on these references.5. Go to the offshore consultant who is an established expertor writes a newsletter for advice. If the consultant is notconcerned about putting his or her advice in writing forthe whole world (and the IRS) to see, it should be credible.6. Stay away from the promoter who offers a flat price forrunning you off to an island in the South Pacificregardless of your unique needs. One size never did andnever will fit all.7. Avoid those who promise exorbitant os returns on yourmoney. Don't lose sight of the fact that high returns comefrom higher financial risks, or even scams. You don't havetime to earn it back again! There is no magic about goingos that will earn you the highest rate of return with lowrisk. It has been said that the safest place to double yourmoney is to fold it over once and keep it in your pocket!Retain your prudent guidelines and conservatism.8. Don't abandon those traditional safeguards and highstandards you've developed for selecting your domesticprofessionals. You need to trust and listen to youracquired wisdom and instincts. Don't compromise. If youdon't like people, don't use them, no matter what you mayhave been told by others. Prepare for a long-termrelationship. Prepare too for the possibility of your second

generation workconsultants. Codisabled or whesignificant otheencourage, as awith the reluctain financial matcommunicationwith respect to9. Service providerthose who haveand those whoObviously, you'lwho caters to yIn many cases, spoucially in a family partneeducating the survivorrelish. If your. spouse tmanagement, then at lcially astute child. Dointhe financial dynasty wI see os APT$ for sale frelse, you really can't geIBC can cost as little aschase it? Be honest witherence to evaluate theYou can't just buy osclients that they shouldFor a trade-off studture consisting of an Aall nominees in place, b

I6 T H E 0FFSHOA.E H O N E Y B O O Kyou will pay between $~o,ooo and $15,000. If your gut reaction tothe above numbers is alarm, then going offshore may not be economicallyfeasible for the size of your estate, or you have a falsesense of the value-added phenomena and the costs of going os thecorrect way. You are purchasing the expertise that goes into creatinga legal, tax-compliant, functional offshore structure. Besides,the U.S. dollar is still way down in value worldwide with respect tomost major world currencies and doesn't buy as much as it used to.Have you traveled to Europe lately? I use the "Snickers test," andsurprisingly, it works. When a candy bar sells for 50 cents at fullprice in the U.S. and for 69 cents in a supermarket in Basseterre, St.Kitts and Neris, the "RA cost of living index" tells me that food is38 percent more expensive on St. Kitts. Easy to do. U.S. candy barsare popular and for sale worldwide, even in Moscow.The os structure could be done in phases. It may not be necessaryto put it all in place the first year. This would defer some ofyour setup costs, but may subject you to some unnecessary risks.Staging is not generally recommended unless absolutely necessaryas a planned strategy, never because of implementation costs.Also, get a handle on the second-year costs, or subsequent years'costs. Your os consultant should be able to give you an estimate ofthese future costs within 10 percent.International Services and SetupThe U.S. is the most litigious society in the world, and it has spawnedan entirely new defensive industry-the so-called "asset protection"specialty.Numerous professionals and companies, onshore and offshore,are competing to set up your structures. Offshore operations are asource of both initial revenue and continuing revenue from ongoingannual fees. A word of caution is in order: Once company nomineesare put in place, it is extremely diffic'ult, when compared to the U.S.legal system, to replace them. Registered agents and nominees won'treadily relinquish their roles and future income-but if you persevere,they will eventually do so.

Don't confuse the substituabsolute right in a trust indentuout cause. I recently saw a BaAngeles attorney that providecharged for cause, but it didnwas one of the cotrustees: youneed to clearly distinguish betwpany (IBC) and the trust (APT).I A crown jewel is generallyapartment house with highly apprthe family residence because it is

Ulhy Co Offshore?The dog with a bone is always in danger.OLD AFRICAN PROVERBThe nail that sticks up gets driven down.OLD JAPANESE PROVERBWE ALL HAVE different agendas, we think. Yet if you speak confidentiallywith others who are similarly situated, you will find muchcommonality in the considerations for going os and the concernsthat precipitate such thinking. Simply speaking, it is more difficultfor a creditor to access offshore assets. In an offshore court of a taxhaven, the judges generally grant less (or no) punitive damages thanis the case in the U.S. Let's initially discuss why you don't want togo offshore.Reasons to Stay OnshoreThe U.S. government insures your funds on depositwith onshore banks. There is no equivalent ofAmerica's FDIC or FSLIC banking protection' anywhere

20 THE OFfSHO*RE H O Helse in the world,Man. Canadian bathrough the Canad(CDIC), while the Iprotection for 75 plimit of around $3a bank bailout ageInstitute. The newinsolvent MexicanIf an offshore banas being "insured,"Offshore banks doinvolving a bank "Indemnity Corporsuing the governmoutcome was unknbook. Your protecreserves of the insthat in many interbanking regulatorsare required in theas well as a tax hahavens maintain oon deposit!U.S. stock brokeraSecurities Industryagency of the fedeexample, your brokMany brokerage hinsurance.Many offshore peoDelaware, WyominThe U.S. is the moworld, with only telections, and a saand insured bankin

The maximum income tax rate in the U.S. is lowerthan in many other industrialized countries.The rate of inflation in the U.S. is relatively low.Your estate and financial planning needs can often bemet by onshore planning. There is a surplus of onshoreplanners.There are no express exchange controls in the U.S.,though many indirect controls and disclosurerequirements are imposed. You may wire transfer anyamount of funds offshore. (The privacy of such wiretransactions is an issue addressed elsewhere in this book.)U.S. currency remains strong and freely convertible toother world currencies, and the "Ben Franklin" is theunofficial currency for most of the world.2 More $100bills circulate outside the U.S. than inside, by a ratio ofabout two to one.Aeasons to 60 OffshoreAt this point you might ask, "If the U.S. is so good, why go offshore?"There is a myth perpetuated by the press and the IRS thatpeople only go offshore for illegal purposes or to hide something.Wrong! To try to identify all of the reasons why you would want togo offshore with some of your assets would be almost impossible.However, we can identify some of the major factors. Some mayappear redundant, but this list was created in an attempt to encompassas many common concerns as possible.A quest and hunger for renewed personal privacy andconfidentiality. With faster, more powerful computerstying together more and more databases, there mightultimately be no financial (or personal) privacy left inthe U.S.Concerns for financial security for you and your familyfor your lifetimes, and perhaps for your financial dynasty.

22 THE OFFSHORE MOHEY BOOKFear of the future. Is the EnvironAgency going to charge you for rsoil on that parcel you sold in 19$1,000,000?Rampant litigation, vexatious litigand attorneys, and rogue juries githe United States. Appeals on sucprohibitively expensive and rarelythe next victim?Concerns with the U.S. governmegoing bankrupt? Is it there alreadsurplus until the national debt is pthe long-term effects upon you (sto balance the budget in seven to"eventually" clear up our childrendeficit?Fears with respect to the integritybanking system as bank after banmegamergers.Hidden and confiscatory taxes; crcostly governmental thickets of refrom mediocre bureaucrats. Througovernment controls your businesyou-not the other way around, aintended.The possibility of divorce and relaexpenses of a prolonged separatioconduct of an imprudent spouse osignificant other; alternatives to aPotential business failure, insolvenAnticipation of debilitating illnessProvisions for your retirement.Providing for your spouse and prolifetime and after your death.Providing after your death for a dan insolvent adult child with poorskills, a relative, or a friend.

UIHY 60 OFFSHORE? 23Protection of a lump-sum disability award (such aspersonal injury, worker's compensation, no.faultsettlement) against future claims by creditors.Certain government and business interests don't want to see yourassets go offshore:Your friendly banker and, in general, the Americanbanking system. As the level of flight capital grows, thereare fewer dollars in the U.S. banking system. Astaggering two-thirds of the $100 bills in commercecirculate offshore! Banks make money on the arbitragebetween what they pay you for the use of your moneyand what they charge others to rent money. They alsomake money by providing banking and financial servicesand transactions. As money flows offshore, the U.S.banks make less money.Your onshore professionals, who know little or nothingabout going offshore, will discourage you to protectthemselves and to retain you as a client.The Internal Revenue Service. As funds legally flowoffshore, the IRS loses its ability to monitor and audit theday-to-day activities of people who are wrongfullyperceived to be evading taxes by the mere act of goingoffshore.Credit reporting bureaus (there are three major services),databases, and credit card issuers. There is also money tobe earned by selling demographics; your credit report andyour buying habits at supermarkets are salable data andassets. As more and more transactions go offshore, thedatabase on you becomes less accurate and complete. Youhave partially beaten Big Brother-the system doesn'tknow all about you.Plaintiff's counsel. To sue or not to sue, that is theirquestion. It has got to be worth their while. The bestway to find whether you are the next victim is to run anasset search on yourself to determine whether you'reworth suing. If your assets are not in your name, that'

24 THE O F F S H O I E !!HEY BOOKmight discourage litigation against you. If the assets arenot in your name and are offshore, those assets couldprobably not be sold to satisfy a judgment against you.Law enforcement officials who abuse the asset forfeiturelaws (with the full support of the courts, based on theEnglish common law) to generate "funding" for theiragencies. When your assets aren't in the U.S., they aren'tavailable to be seized. I know of no asset protectionstructures solely in the U.S. that will protect assetsagainst asset forfeiture. You must move the assetsoffshore.In short, there are many reasons to look for alternatives to onshoreassets and investing.I Some people believe that the FDIC and F~LIC insurance encouragesbanks to take higher risk investments. This reduces reserves and causesexcessive disintermediation. This in turn puts more pressure on bankers tooffer depositors higher yields and assume higher risks.2The $100 bill is the de facto currency of Russia, where it is estimatedthat $16 billion worth of the bills circulate. Forbes reported in lMay 1999that about US$z6o billion circulate offshore.

25Ulhere Do I Place My flssets?Sunny climes are for shady people.F. Scon FITZGERALD, INTENDER IS THE NIGHT, INREFERENCE TO MONACOTHE OFFSHORE LOCATION you select is called by different names by .different people: the situs, the tax haven, the jurisdiction, the venue,or the international financial (or banking) center (IFC). All of theseterms mean essentially the same thing. However, IFC is certainlymore prestigious a term for a situs than a tax haven in a third-worldor third-tier country.The title of this chapter poses one of the four questions I ammost frequently asked:I. Where is the best location for my offshore assets andbusiness operations? (This is usually the first questionfrom the client. The only appropriate answer is that itdepends on one's unique objectives.)2. How do I trust the offshore service providers?3. What if something happens to my trusted serviceprovider?4. How do I retrieve offshore assets if I need them?

26 T H L O f f S H O ' R F HOHfY B O O KThere is no best answer as to where to go, because that dependsupon the client's needs. Is it for personal reasons,jbusiness reasons,or both? Is it for a trust and/or an IBC? For creating and managingan offshore captive insurance company and mutual fund, you shouldsplit the two functions between two jurisdictions.Guidelines for f ualuatinq Offshore OptionsHere is my set of situs evaluation yardsticks, presented in no specialorder of priority,General Reputation or Quality of the T ~ HavenChoose a haven that has a good reputation worldwide for providingquality international financial services. Some countries had successfuleconomies before the U.S. was formed. Look for the well-regulatedlocal institutions and professionals and sufficient safeguards tomonitor the quality of banking services and professionals. Further,choose a country that provides business-friendly legislation and thathas been a haven for many years, not a newbie to the field. Select ahaven in which only "clean" business is encouraged and banks operateunder strict rules. You might find yourself scrutinized and stigmatizedbased on the situs you have chosen. The U.S. governmentissued an alert to the U.S. banking system with respect to Antiguain 1999. This was in response to increasing levels of banking privacyand secrecy, which the U.S. government suggested might be anattempt to cover up money laundering.Because the level of flight capital is increasing worldwide, offshorebusiness has become very competitive. Capital flight occursconcurrent with social destabilization. If you threaten people andcapital, they will leave! Around the world, many countries continueto inspire fear in their middle and commercial class through unstablegovernments, high taxes, burdensome regulations, or wealthredistribution through litigation. The prime candidates for capitalflight in 1999 include:

UIHER[ 00 1 PLflCt M Y A S S E T S ? 27Canada. Renewed secession calls are being heard fromQuebec, a French-speaking province of Canada thatconsumes more in tax dollars than it generates and willhave no trade treaties with anyone, including Canadaand the U.S. While Quebec is a mineral-rich province,the minerals will stay in the ground due to the cost ofenvironmental regulation and the taxes on employeesand labor.Ireland, Italy, Spain, and Greece. High taxes and agross domestic product (GDP) disparity with otherEuropean Union nations will drive prices up and jobgrowth down. The new EU currency will onlyaggravate the situation.Venezuela. Hugo Chavez, who led an unsuccessfulcoup several years ago, is now a democratically electedpresident with big social program ideas. Enough said.Australia. Because of the government's seizure oflegally registered guns from gun owners, the criminalsnow know that nobody is armed-and crime is risingrapidly. The middle class and upper class are lookingto hide assets abroad to protect against the growingcivil unrest.South Africa. For fifteen years, money has beenleaving South Africa illegally in bags, cars, stuffedanimals, and other creative vehicles. Now thatcurrency controls have been relaxed, many of thebourse-listed companies are seeking listing elsewhere-London, New York, Toronto, anyplace but SouthAfrica. This nation leads the world in murder percapita, burglaries per capita, and carjackings percapita, and has designed an anti-carjacking device thatwill immolate any would-be carjacker with flamethrowers from underneath the car.United States. The U.S. will also see its share of capitalflight, primarily due to increasing regulations,socialization of medicine, out-of-control tort litigation,

18 T H E OFFSH0,RE H O H E Y B O O Kand a government perceived as trying to exerciserestrictive powers over its citizens.New tax havens are springing up like mushrooms after the rain.How many of you have ever heard of the following jurisdictions, letalone tried to find them in a world atlas without an index: Vanuatu(1,300 miles northeast of Sydney, Australia, and northwest of Fiji),Niue, Cook Islands, and Anguilla? They all compete with each otherfor the economic gains from your money going into their tax havens.As businesspeopie, the local politicians appreciate how your moneycan improve their banking industry, GDP, local economy, and employmentopportunities for their citizens.I prefer. tax havens that utilize a legal system based upon Britishcommon law, precedents, and the doctrine of equity. This system iscalled the Westminster model. I find these havens preferable to cowtriesthat alternatively use statutory adaptations-a highly codifiedbody of civil laws-such as Liechtenstein and the French Territories.These, 1 admit, are subjective criteria. It is your comfort levelthat needs to be satisfied.For asset protection purposes, you should select a haven thatwill not enforce U.S. judgments and U.S. bankruptcy court orders,does not have forced heirship rules (permitting you to exclude U.S.statutory heirs (+)), avoids the rule against perpetuities allowing yourtrust to endure longer than in the W.S., and will not honor a taxclaim from another country.Principal languageWhat is the principal business language of the country? My personalpreference is that English-speaking Americans who can't converse ata highly sophisticated legal and technical leirel in another tongueremain in the English-speaking jurisdictions. I can be swayed, though,under the right circumstances. Can you read legal documents draftedin another language? If not, stay in the English-speaking havens; there

UlHERE D Oare many high-quality jurisdictions to choent Spanish, you could use Costa RicaIslands. Otherwise, don't add to the comand decision-making process by consideris an impediment to achieving your offshlanguage, try Curaqao ("Island of BusiAntilles, or Aruba (where Papiamento isUse an Independent Country or a Uery StThere are conflicting views on this subselect an independent country that cannojurisdiction to comply with an offshore cbest to avoid jurisdictions that will be retry to implement laws that are unfavorabfind this unlikely because of the fierce chavens for flight capital and a desire toservices).Others prefer the protection affordBritish territories; they feel the "British cthe country. For example, the CaymanCaicos Islands have their military defense(I-) and their banking systems are subjectBank of England (+), making them muchSeek Excellent, High-Ouality CoNothing is as frustrating as working lateto Costa Rica before you leave for homemorning that it bounced back because ounable to connect or the connection timfrom the Cook Islands with its most imnoise on the line. Communications problea full business day delay. One could alwthe terms or conditions must be in writinskimp on costs. Always go with first-cla~nd long-distance telecommunications se

You will need varied forms of telecommunications to transactyour worldwide business offshore, including the following:Voice communications by telephone. If you feel compelled touse a "roam" phone, use a high-quality 2.4 GHz digital phone. Theolder, cheaper analog phones operate at 900 MHz and are very noisy.They can easily be monitored with inexpensive equipment; like theold party lines, they are not secure. The 2.4 GHz units are noteasy to invade and are getting quite inexpensive. If you are willingto pay, you can get high-quality voice encryption from varioussuppliers.Facsimile (fax) communications. Always use the fine modeto assure higher-quality reception. Although it seems more expensive,in the long run it will save you money and time.Modem-to-modem data transmission. Don't push the curveoffshorelines are primarily satellite links of poorer quality thanthose in the U.S. Even though you may have just installed this redhot56K modem or you now have an ISDN or DSL connection, if yourun at slower modem speeds (under 56K) you'll be happier with yourconnections, with fewer dropouts. (Exceptions do exist-Nassau,for example, has fiber optics lines run in its downtown area.)Internet communication. This includes encrypted E-mailusing Pretty Good Privacy (PCP) over the World Wide Web. PCP isomnipresent on the Internet and has become the de facto standardfor private, secure E-mail communications. If you are computersawy, you can download PGP off various websites. If you're not, youneed a relatively user-friendly PGP program.The 1,024-bit PCP encryption system should be safe from the socalled"brute-force attacks" for several more years because of howcostly it is to break this encryption. This is based on the current acceleratingrate of technological advances in this field. If the governmentis willing to spend the money, they can break 1,024-bit encryption foraround $750,000 a page in Arlington, Virginia. There is a publiclytraded U.S. company that provides software that uses super-high levelsof logic with a computer system that can teach itself to break themessage in any language. Are you worth it?

UIHFIIf D O I PLRCE NVoice scramblers and encryption. Voice scsome degree of privacy against eavesdroppers andat the same level obtained by full encryption. Donscrambler with encryption-encryption is much bevery secure, full encryption devices for voice commuand cellular, are available from such firms as Transcin Lincoln, Nebraska. Phone: (402) 474-4800; faxwebsite: www.transcrypt.com.Wire transfers. These fulfill the need fortransfers and are available in most major world cular wire transfers are all consummated in New YSeek Tati Hauens in a User-Friendly Time ZoConsider the advantages of a convenient time zoneget up during the middle of the night to call your oasset manager? How many hours are you willing toffshore banker? Summer is only "one day long" obut generally all year long in the Turks and CaiIslands, the Bahamas, the Canary Islands, and thePolitical and Economic Stability. What is the strength and stability of the centralCaymans, the Bahamas, and the federation of Stare clear examples of stable democratic systems. Wgoverning political party affect the stability of yoture or the safety of your money? Is the counrry slent political swings, military coups, or invasionreputation for massive corruption?A carefully drafted APT will provide for these cappropriate language in the trust deed. Several eThe trustee may resign and/or the trust may be rand reactivated) in another tax haven. The precipcould be enumerated in the trust deed, expressewishes (sometimes referred to as a side letter), or

32 T H [ O f F S H O R [ HOHiY B O O Kwith the trustee. Most tax havens welcome and will adopt "cleanorphan" trusts, or those trusts in good legal standing moved fromtheir original jurisdiction and in need of a new jurisdiction.Information Exchange and PriuacyWhat are the levels of banking and financial privacy mandated bylocal laws? What are the disclosure requirements as to an IBC madea public record? What is the level of information exchanged betweenthe U.S. and your tax haven for routine tax matters? What tax andassistance treaties exist between the U.S. and the tax haven? TheMutual Legal Assistance Treaty (MLAT) provides for the exchange ofinformation among member countries for suspected criminal matters,but it excludes tax crimes such as U.S. tax evasion. The principalMLAT is between the U.S. and the U.K., and because of that, theU.K. exerts influence throughout the former British colonies and thecurrent overseas territories. The U.S. exerts great direct economicpressure upon Caribbean jurisdictions to enter into special "drugtrafficking" treaties.The issue of tax treaties is extremely complex, requiring theassistance of a tax expert or an international tax specialist. YourCPA is unlikely to be really familiar with this topic (see Chapter 11for detailed information).Currency Regulations or Exchange ControlIt's preferable to have no regulations, but minimal regulations might beacceptable. Look for the ability to obtain asset preservation by usingcurrency diversification, as is done with Swiss annuities, Swiss francs,Euros, and so on. Countries such as the Bahamas, the British VirginIslands (BVI), and the Turks and Caicos Islands (TCI) use U.S. dollarsfreely and with U.S. dollar-designated banking accounts. Euro accountsare available, as well as accounts in other G-7 currencies, with a corporateresolution authorizing such. Check with the bank, or use a bankthat provides accounts in the best currencies for your application.After countless years of currency controls, in May of 1998 Israellifted controls on its currency, the shekel, and made it freely convertible.No calamity followed. Its citizens could freely invest off-

LUHERE D O 1 PLACE HY ASSETS? 33shore and open foreign bank accounts. The most interesting andunexpected consequence is that Israeli investors began to use theU.S. as their tax haven and have invested ifl U.S. real estate (in NewYork and Florida, for example) as a safe haven for their money. Theyalso have provided for possible expatriation in their future or perhapsfor their family use.In early 1999, the Malaysian central bank lifted its six-monthban on capital flows (flight capital). A rush by foreign investorsprompted it to impose a flight tax of up to 30 percent, only exacerbatingthe outflow problem.Tan RegimenTax treatment on income tax, foreign source income, nonresidentissues; see Chap-Your os structure is only as sound as the professionals who createand manage it and its tangential infrastructure. Look for an educatedworkforce: an abundance of fairly priced, qualified attorneys,banking facilities, chartered accountants, asset and portfolio managers,consultants, company managers, and trustees. Clearly, if youneed the U.S. privacy afforded under the attorney-client communicationprivilege, you should limit your communications in the UnitedStates to your attorney. CPAS and others (such as financial planners)do not have such a complete privilege. You don't shop offshore forprofessionals by letting your fingers do the walking in the Arubayellow pages-you use referrals through existing personnel andother trusted professional relationships.I suggest that you use residents of the jurisdiction who have beenthere so long that they are no longer considered outsiders. Theydon't want to lose their work permits and become exiles, so theyare more likely to be trustworthy. This is an extreme statement, butI avoid people with an alcohol or gambling problem or those who arepreoccupied by the details of a bitter divorce. My sympathies go outto them, but my clients' assets are my highest priority.

34 THE O f F S H D R l HOHfY B O O KLong-Term Economic and Social StabilitySelect a jurisdiction with a high per-capita income, providing for ahappier populace. Look carefully at the business and political climateto see how it might affect you. Even the Cook Islands had a politicalscandal in 199s that made some offshore consultants nervous,including me. Haiti was a stable economy until the clampdown onU.S. importation of foreign-made goods that used child labor, andthe takeover (invasion) of Haiti by U.S./UN forces in 1994. Now itseconomy continues in shambles. The EU constantly puts pressureupon the world's tax havens and the U.K. to pressure their overseasterritories. The U.S. government continues to pressure the U.K. inthe same manner. We see ever-so-slow erosion in the privacy of theworld's banking system. In a balancing of interests between privacyand terrorism or money laundering, the individual's right to privacywill fail.Local Customs and Social EnvironmentReligion, politics, labor movements, social life, work ethics, businesscustoms, crime, and drug involvement are further factors to consider.You can find out whether these issues are important in your jurisdictionby reading the local newspapers, speaking with local citizens,and, best of all, living in the country during an evaluation period.Rcquisition of Second Passport or CitizenshipA second citizenship, second passport, tax residence, tax domicile,real estate ownership, work permit, operating a "local" business, orultimate retirement site are essential considerations that would havean effect on the selection process. If you intend to become an expatriate,a second passport could be beneficial. (See Chapter 10.)OS Operating EntityWhat you require from your os structure determines where you go.Clearly, if it is a self- or captive insurance company (see Chapter 13),

UlHERE 00 1 PLRC[ M Y R S S Eone uses Bermuda, the Caymans, or Guernsey. Even theCaicos Islands are seeking to emerge1 in this area.For example, some havens encourage specific types ofto locate there by enacting special preferential laws. Busiwill help develop their infrastructure or create local jobsdesirable. These jurisdictions are generally in Switzerlanbourg, the Netherlands, and Liechtenstein. Similarly, theand the Netherlands Antilles, as holding company sites, aBankingWhich international banks have correspondents in your oating countries to facilitate transactions? Which banksoperating branches in the U.S.? For the ultimate in privause those with U.S. operations. Statements should be senmail fowarding services to avoid foreign mail being postto you.Real EstateWhat are the acquisition and annual costs of offshoreownership? While the costs are outrageous in the CaymanRica you get more for your money. What are the limitaownership? Who can take title?What anticipated trends in future local legislation may affecare doing? Is the tax haven stable, with conditions changingis it on the leading edge? Is the haven subject to outside (ences and pressures of "cooperation" with U.S. authoritiesCurrencySelect a haven with a stable currency, U.S. dollar or pegU.S. dollar (Bahamian dollar, Eastern Caribbean dollar, oIslands dollar, for example).

Spendthrift Clau36 THf O F F S H O R E M O H t Y B O O KLegal Issues and TeWithout at least a cursory knowledge obe at a disadvantage in the site selectiontion on these terms, read Appendix A oyour local library). For a comparison ojurisdictions, see Figure 4.1, provided coA spendthrift clause is language in a wiprotect the assets of the estate against thof a beneficiary. Distributions to the becretion of the trustee and may even ceaseSome exceptions where a spendthrI. Where the grantor names himse2. In states that do not enforce sutort law matters and New Hamyour local counsel.The Statute of LimitThe statute of limitations (s/L) is theparty claiming to be injured by the settstill may file) an action to recover damagfor fraud is one year from the discovperiod can be as long as seven years. If truptcy during that period, the bankruptctional two-year period to file a recoveryof limitations to nine years.The statute of limitations prohibitsAPT if brought too late (filed too late indiction). Generally, the statute beginsdiscovered or should have been discoveto have been damaged by the settlor. Th

UIHERE 00 1 PLRCF MY A S S E T S ? 37l JurisdictiWIIIQ Wle b~lal~onson certainly La1 cerlalnty that proulngaWm repaldmg non. Doh1 standard challenpmp an smbr an be sefilman fraudulent lnlenlP'w"'m mognaon of of proof requ~red a henef~nary retaln some IS dlluays onforela mestablehmg dtqree of cred~tnrjudgmenls fraudulent lntenlthe Grenadinesxblondo x xDelarnn x x x

38 T H E OFfSHORf H O H f Y B O O KStatutory lehnad~ue Statutory Presumplronrecoqnltlon of Statute of certalnty that protedlon certalnty agalnsttl~zabeth trust remalns afforded regdrdlnq fraudulentouemde ua~ld ~f fraudulent ~rnrn~grant requirements Intent ~fned~tor proulslons transfers determined trusts for freez~np transferorto haue taken place assets for an remains soluenlAPT follow~np transfersCayman blandsxthe GrenadinesxTuda and CairnxAlaska X NIA XColorado X N/ADelawm x NIA X

* WhG~bn"instaferortransfvencyon [Is of 1 flugusof cho~re ofouemdeCayman Islands x ** Ind, mentNote:othersionsof theprovisconsiMarshall Islands x tectiothe GrenadinesXTurh and Ca~corXColoradoDelawareO 1998. Engle, Reiman & Lockwood pc.All rights r

40 THE OFfSH.ORE R O H E Y BOOKCook Islands, and Mauritius, for example, have specific statutes oflimitations on challenging an APT.Most tax havens have abrogated the time period of the statute.The S/L clock can start to run when an APT is created or an asset istransferred to the APT. Most jurisdictions typically have a statute oflimitations of two years or greater-for example, the Bahamas hasa two-year S/L, sometimes referred to as a Fraudulent DispositionAct, which limits the period in which a transfer or disposition of anasset can be attacked by a creditor.The Cook Islands is unique in this area-it has by far the shortests/~, only one year from the date of formation of the APT (underone interpretation), whether the creditor has knowledge of the APTor not. Adding insult to injury, even when a creditor is successful inattacking the transfer, it is only beneficial on that creditor's behalfand not for the benefit of all the creditors.Choice of Couerning LaluA significant issue to ponder is the governing law for your structureor entity. For example, the Bahamas' Governing Law Act states thatif a trust is clearly governed 'by the laws of the Bahamas (in languageto that effect contained in the trust deed), then the courts ofthe Bahamas have the exclusive jurisdiction with respect to any disputesover the trust. A foreign judgment regarding assets or rightsas contained within the trust would not be honored by the Bahamiancourts. Nothing precludes the party claiming to have been harmedfrom filing an action in the Bahamas, but cost and geography areusually deterrents.Some U.S. cases have reflected the views of U.S. judges angeredby assets moved offshore or trying to retain their broad jurisdiction(called "long. arm") over the assets. They have ignored the foreignjurisdiction election because of the nexus of the assets to their venue.In a 1999 federal case (referred to as the Anderson case), the judgefailed to accept the position of the defendants, that the assets theysent offshore were out of their control. The judge held the defendantsin contempt and jailed them until they returned the money-

six months later. This type of judicial conduct sent chills through theoffshore community.One other issue to consider is the Mutual Legal AssistanceTreaty (MLAT), an agreement among the U.S. and many Caribbeancountries for the exchange of financial and banking information forthe enforcement of criminal laws. U.S. tax evasion is excluded asnot being a crime to the offshore countries. The United Kingdom hassimilar agreements with the Cayman Islands, Anguilla, British Vir- -gin Islands, the Turks and Caicos Islands, Montserrat, Uruguay,Morocco, Spain, and Thailand. MLAT is intended to improve theeffectiveness of law enforcement authorities of the U.S. and othertreaty nations. MLAT provides for the establishment of a "Central .Authority"; the Central Authority for the United States is the "AttorneyGeneral or a person designated by him [or her]." The CentralAuthority, for example, for the Cayman Islands is the "CaymanMutual Legal Assistance Authority or a person designated by it."Requests for assistance under the Cayman MLAT are made by the"Central Authority of the Requesting Party to the Central Authorityof the Requested Party." The assistance provided by the CaymanMLAT includes the following:taking the testimony or statements of persons;providing documents, records, and articles of evidence;serving documents;locating persons;transferring persons in custody for testimoriy;executing requests for searches and seizures;immobilizing criminally obtained assets;assistance in proceedings related to forfeiture,restitution, and collection of fines;any other steps deemed appropriateThe assistance provided to the United States by the CaymanMLAT, however, is limited. Significantly, the assistance afforded bythe Cayman MLAT does not apply to:(a) any matter which relates directly or indirectly to the regulation,including the imposition, calculation, and collection, of

42Thferoftwferswferta2,as

UIHIRE 00 1 PLACL MY R S S E T S ? 43icated communication systems used in the offshore banking systemare called Cedcom, Euclid, and Microwire. The transferring of U.S.dollars with SWIFT is done in the U.S. banking system, which appearsto be vulnerable to snoops and not secure.Note the following E-mail message appearing on the "netlawyer"mailing list (net-lawyers@lawlib.wuacc.edu) on the Internet:From: [address withheld]To: net-lawyers@lawlib.wuacc.eduSubject: Asset LocatorsA while back, someone posted a listing of asset locator services,but for some reason I cannot find that post. Would someonepost the names of some of these companies for me? I am particularlyinterested in companies that can trace electronic fundtransfers. Thanks.What is surprising is that even if U.S. 'dollars were to be wiredfrom Zurich to the Cook Islands in the South Pacific, they wouldgo through New York City. The process involves sophisticatedencrypted electronics (the SWIFT system) without any exchange ofpaperwork by the correspondents. There must be a clear audit trailto protect member banks, but no cash changes hands except for finalaccounting. The expressed goal is to reduce banking errors to a minimum,but the end result is to provide little privacy to the partiesinvolved. The U.S. Federal Reserve wire transfer system is not a veryprivate system.For privacy, clients have reported exchanging their currency toyen or deutsche marks for wire transfers with more privacy and thenstaying in those currencies.For a turnkey APT with trustee and trust protector in place, the formationcosts could be two to four times the cost of an equivalentU.S. trust structure.

44 T H F OFfSHORf I\I Reports indicate thformed in the Turks and Cfee approach and targets

Ulhich Structure Do I Use?ONCE AGAIN, there are multiple answers to the question posed inthe chapter title. Each person's needs are unique. Steer away fromoffshore consultants who offer only one solution-for example, an ,offshore private bank in Nauru for everyone, including your dog.Why are you going offshore? What are you trying to accomplish? Isit achievable? Does your os structure have flexibility to accommodatefuture personal or business changes?The following are the factors that lead up to the creation of theoperating structure. They are not presented in any particular orderof priority.Your age. If you are in your 4os, your prime earningyears, you can afford to take more risks and be moreaggressive. You have the time to make some of yourcapital back if you lose it, and consequently you canseek a higher return on your money. On the otherhand, if you are close to your retirement age, you wantsafety because you don't have the time and energy toearn it back again. You may also want to provide for

46 T H E O F F S Hyour granfoundatiothink youand also kNationalitfour are qimplicatiohave activmay be abmanagingresident ato a residyou as a Ua nonresidthe U.S.Investmensive? Do ymanager,Preexistinyou alreadwhat it wchanges ingrandchildchange inyou accumto get it bOne of the most0s structures is t

UlHlCH S T I U C T U R [ 00 1 U S E ? 47other jurisdictions as the exempt company, the BVI or Caricommodel, or the Channel Island model. The typical IBC is used as anoperating or holding company, as shown in Figure 5.1. Offshore itis referred to as a company because it is created under a companyact or ordinance. The IBC, like any corporation, has beneficial ownerscalled members-the equivalent of shareholders, officers, anddirectors. The vertical line in Figure 5.1 is the offshore line, designated"0s." (Offshore would be defined as foreign under the InternalRevenue Code.) (See Appendix A for the critical definitions offoreign and offshore.) Foreign denotes any location other than theU.S. and its territories and possessions. To the left is the U.S., andto the right, offshore. We see that the os IBC has opened up a bro- .kerage account with a U.S. stock brokerage firm. The assets can bemanaged and traded under a full discretionary account by the brokeragefirm or by using an onshore or offshore portfolio manager.'The IBC has entered into a written engagement with the portfolioand asset managers to provide for compensation-commissions,fixed fee, or performance-based fee. Trading could be over the Internetwith a brokerage firm that provides such services.,Under current U.S. tax laws, the IBC pays no capital gains taxesto the U.S., providing it is not a controlled foreign corporation'(CFC). It is extremely difficult to avoid controlled foreign corporation(CFC) status! It may pay income taxes on U.S. source income orincome effectively connected with the U.S. If the IBC is located in azero- or low-tax haven, it also pays little or no capital gains tax inthe tax haven. (A withholding tax is assessed on any U.S. paid dividendson stock and withheld at the source.) This is not a taxwindfall. Although the os funds grow more rapidly because of thecompounding effects of utilizing untaxed resources, when the moneyis ultimately repatriated to America, the taxman gets his due. That'swhat makes it tax compliant. The distribution is the taxable event.Remember that tax-compliant offshore tax deferral is very difficultto achieve.Figure 5.2 takes Figure 5.1 a step further, building upon the conceptof the holding company. Holding companies are generally createdfor a specific purpose-for example, to hold real property, tohold the bearer shares of operating companies, to manage and trade

48 T H F O F F S H O R E t i O H E Y B O O K\figure 5.1: Typical 181Offshore LineShareholdersShareholdersstocks and bonds, for currency or commodity trading, or to own aU.S. business. The holding company may be an excellent vehicle forowning a company with high environmental risks or contaminatedand polluted real property. It could be used to circumvent the prohibitionagainst a trust owning or having an interest in restrictedforms of investments (including real property).Notice that we now have four operating IBCS, each being theshareholders or owners of the U.S. entities. I have intentionally made

UlHlCH S T R U C T U R EOffshore Line dit quite complex to use it as a teaching tool. IBCating company as in Figure 5.1, but now it is 100the holding IBC, IBC 5. In our example, IBC 2 is aAmerican corporation.IBC 3 is involved with U.S. real estate. It coueral partner of a U.S. limited partnership holdincontaminated real property with an uncertain liaIt could hold U.S. real property in its own name, b

50 THE OFFSHORi H O H E Y B O O Ksubject itself to the Foreign Investor in Real Property Tax Act of1980 (FIRPTA) and the Economic Recovery Act of 1981 and have U.S.capital gains taxes withheld in escrow upon sale of the property inthe U.S. It could also be a limited partner in a limited partnership.In Figure 5.2, IBC 4 is a member (owner) of a U.S. limited liabilitycompany.All four of the operating IBCS have central management throughan os holding company, IBC 5. So long as it is not prohibited in thejurisdictions where established, there can be total commonality ofmanagement-the same directors and officers for all five IBCS. Furtherprivacy could be achieved by placing the operating companiesin the Bahamas and by establishing the holding company in theNetherlands Antilles. If money is no object and privacy is of utmostimportance, or you are just plain paranoid, each IBC could be incorporatedin a different tax haven. Further, each IBC could have differentofficers and directors. No one but you would know what washappening. If you arrange such a complex structure, make sure toleave good notes in case of your disability or premature death, or noone will be capable of running it. I suggest that you have a masterbook in any case, updated as necessary, held offshore, sealed and inescrow, for that ultimate day.Figure 5.3 is a variation of Figure 5.1. It is a simpler structurethan Figure 5.2 in that the holding company is replaced by a familytrust, called an asset protection trust (APT), where the APT providesinsulation for the settlor and his or her family.Note in Figure 5.3 that the prior roles of the r~cs' directors andofficers have been taken over by a pair of administrators and fiduciariescalled the trustee and the trust protector. The trustee and theprotector manage the trust on behalf of the three beneficiaries identifiedas Beneficiary I, 2, and 3. Figure 5.3 is a popular os combination,combining the features of the IBC for asset managementand the trust as an inter vivos and/or testamentary vehicle. Thetrustee could also act as the asset manager or hire an asset managerfor the IBC.A structure for handling the "problem" of excessive equity inU.S. real property is the equity stripping company (see Chapter 10,page 144). In Figure 5.4, the domestic real property is an attractive

nBeneficiary

52 THE O I F S H O R E H O H E Y BOOKplum inviting litigation because you have assets (equity) that yourprospective plaintiff and his or her attorney want to take from you.In an "arrangement," for example, a loan is made by you, and yourreal property is given as security, the collateral for the loan. This isnot a taxable event in the year taken. A second mortgage or deed oftrust is recorded against the real estate, reducing your equity. Perhaps,in the case of your residence, the equity is reduced down to thehomesteadZ value, making the house unattractive as a means of satisfyinga future judgment against you.Referring to Figure 5.4, first, an escrow account is opened withan attorney or escrow company. A preliminary title search is performedand provided for the IBC. The officers of the IBC decide independentlywhether they wish to make a loan on your real estate. Ifso, they fund the escrow, which in turn distributes the money to youand records the second mortgage on behalf of the IBC. Because theIBC is a corporation, there generally is no usury limitation on theinterest rate it can charge you, but it should be in line with the goingrate for similar domestic loans so as not to be conspicuous. Proposednew laws may mandate a minimum interest rate. The newpromissory note is due as a balloon in five or ten years or upon saleof the real property. Or, for an administrative fee (perhaps one tofive points), it can be rolled over for another term. What you dowith the money received is only limited by the lack of imaginationon the part of you and your os consultant. Perhaps you buy a lumpsum,irrevocable offshore annuity due at age sixty-five.One of the few remaining tax shelters available to Americans isthe annuity (see Chapter 9). With the blessing of Congress and theIRS, it is a method to defer capital gains and taxes until funds areactually received by you, the annuitant, hopefully at a time when youare in a lower tax bracket and have more need of the money. Theannuity should be irrevocable and noncancelable if it is intended primarilyfor asset protection purposes. The RA can buy the annuitydomestically or even go os to a Swiss insurance company and converthis or her weak U.S. dollars 'into stronger currencies when theannuity is purchased.

,/'UlHlCH S l l U C T U l t 00 1 USE? 53.ipping ConOffshore LineMortgage

thanshariden54

The International Business Company:An Exempt Company-THE INTERNATIONAL business company (IBC) is an entity not customarilyfamiliar to Americans (except perhaps to those living oroperating in the U.S. Virgin Islands, which permits a restricted formof an IBC). It is created under a model of a company. act. TheCaribbean-style company act, also called the Caricom model, hasbeen adopted as a model act throughout the world's tax havens, butis not used universally. The alternative model involves forming a companyunder an exempt company act in the tax haven, as is done inEurope, St. Kitts, and the Turks and Caicos Islands. This is called theChannel Islands model. It does not actually create an IBC, but anexempt company with characteristics similar to an IBC.A simplistic definition of the IBC is a corporati~n that is referredto as a company, generally created in a tax haven that is authorizedto do business worldwide excluding the country of incorporation. Itcan't directly hold title to real property (except for renting local officespace) or even operate a local flower stand. Bermuda permits an IBCto lease land for a period up to fifty years. Local banking is permitted(of course), as is dealing with other local IBCS. The IBC is an internationaloperating company as opposed to a domestic company. It isreadily accepted in the worldwide banking community as a provenstructure to carry on financial or business interests. As such, many'

offshore trusts carrone or more entitieboth totally owneddirection of the trueven include a privmissive family intelong as the IBC issonal foreign invesing company (FPHavailable from thisU.S. capital gains tBut, capital gainsordinary income wThe IBC can promexcept as may be reformation. Some ofor expressly prohib56 THE OfFSH.OSince many of youthe following is prof the distinctive si-----. Banking serClass A licelicense) is acdiffererit thaexpensive anTrust serviccompany.Insurance oinsurance or

T H F I H T E R H R T I O H R L BUSINESS C O H P R H Y 57describes this type of company in greater detail.) Aninteresting exceptionBendelow of BaselJersey law, theirAct as ancompany.Bct as a Holding Company luith Olunership in Other EntitiesThis is one of the more complex topics and is far beyond the scope ofthis book. Since it may encompass controlled foreign corporation(CFC) treatment, investment companies, intercompany transfer pricing,and subsidiaries of c~cs, I refer you to your qualified tax consultant.Rct as a Lender. Rccounts Receivable Factorer. and LessorAn IBC can make its money work by providing loans. Conversely, itcan borrow. It can pay finder's fees and commissions. For example,in the U.S. movie industry, it can extend credit based on' accountsreceivable in another country. Again, this topic is beyond the scopeof this book; but I recommend Melvin Simensky and Lanning G.Bryer's The New Role of intellectual Property in Commercial Transactions(John Wiley & Sons, 1994). Another good source of informationis the Export Import Bank.Hold Real PropertyOther than where locally restricted, an IBC can take title of (own)real estate and other interests in nonmobile assets worldwide, butnot in the country of incorporation. However, many jurisdictionspermit the IBC to lease or rent real property for local office space.Enter into LeasingAn IBC may enter into leases for real property interests and personalproperty, such as vehicles and equipment, worldwide. My associates

58 THE O F F S ~ O R E HOHEY B O O Kreport that there are excellent vehicle leasing opportunities offshorefor leasing companies.Rct as a Trading CompanyAs the level of worldwide exporting and importing skyrockets, theIBC can participate by performing the function of a trading company.The IBC can use a fulfillment company to take orders fromthe customer, do invoicing, drop-ship orders, and collect on irrevocableletters of credit. Profits would then be captured offshore in alow- or no-tax regimen. The IBC could also license intellectual property.High-quality communications is essential for this type of function.Also, watch out for transfer pricing problems.Probate Ruoidance and Priuacy ToolAn IBC can be used on behalf of an APT as a probate and privacytool. Through the medium of a holding company, it could indirectlymanage the APT'S offshore assets, without it becoming part of theprobate estate upon the settlor's death. This would save on legal feesand probate (the same rationale for using a living trust) and providegreater privacy since the probate of a will in the United States makesit a public record.As a general rule, the IBC may participate in any lawful activitynot restricted by the country of incorporation or the jurisdictionin which it desires to operate. This would include shippingcompanies, consulting companies, offshore manufacturing, shippingand air transportation companies, and licensing and sublicensingcompanies.Some of the more popular IBC jurisdictions are the Bahamas,the British Virgin Islands (where the concept of the IBC was created),the Cayman Islands, the Isle of Man, Panama, the ChannelIslands, Hong Kong, and Gibraltar.Now let's consider some desirable features of the IBC and factorsthat must be weighed in selecting a location for the formation ofthe IBC.

As a fundamental proposition, an IBCautomatically without the U.S.desirable for the following reasons:ially runswould bI. There is no requirement for a formal annual meetinmeetings can be informally fulfilled by telecommuni(telephone, E-mail, mail, or fax), by proxy, or evenratification after the fact.2. Multiple classes of stock may be issued, and there isoption for bearer or nonbearer stock.3. It permits a minimal number of directors, preferablyone, who may be a nominee-for example, the APT'Strustee. (Compare this with the higher requirementcompany formation for Panama-threenomineesldirectors-in Chapter I;, page 241).4. There are no limitations or restrictions upon the,nationality, citizenship, or residency of its officers,shareholders, or directors.5. It is not required that the officers or directors alsoshareholders.6. Officers and/or directors may be other entities; forexample, a trust, another IBC, an LLC, or a partnersmay act as an officer or director when permitted by(Again, compare this with Panama.)7. It is not required to publicly file the names of the dand officers, as it is in all U.S. jurisdictions.8. The books of the IBC may be maintained in anothejurisdiction.9. Simplicity of operations and reduction in professionsaves time.

60 THE OFFSHORE HONEY BOOKTax RegimenAt first blush, a no-tax jurisdiction appears preferable to a low-taxone, but taxes are not the only factor that one must consider. It isessential to have a competent analysis performed of the dual-taxtreaty aspects, called treaty shopping. (For more an taxes, see Chapter11.) Select a haven that has no or minimal taxes on the capitalaccount and no corporate income taxes.(ludlity of CommunicationsTime means money, and poor-quality communications can causedelays in transmitting essential instructions. I don't own AT&T stock,so I can say (from personal experience, and without accusations ofderiving insider benefits) that I consider AT&T the best for .offshorecommunications. But don't overlook the lower-cost (almost free),more private option of using E-mail over the Internet (using PGPencryption).Unless you are fully conversant (that is, truly fluent) in anothertongue, stick to an English-speaking jurisdiction. Otherwise, youadd a level of delay and complexity by requiring certified translationsof each document.Legal SystemUnless you are fluent in its language and understand a given country'sunique legal system, stick to those using the traditional Englishcommon law and the standard form of a company act. It appearsthat all the English-speaking, British-based jurisdictions are improvingupon each other with their own form of a company act (as wellas their trust, mutual fund, and LLC acts). Minimal capitalizationshould be required. The level of company capitalization may affectthe cost of the filing fee.

CostsLow formation costs are not the onlyannual fees as well. Also, get fulltransactional fees, furtherother anticipatedsultant'sand their charges. See Figure 6.1 for an exaFigure 6.1: Typical Costs of lncorpoPreparation of the Memorandum of AssociationPreparation of the Articles of AssociationPreparation of the ResolutionTotal cost of incorporating an IBCOther ChargesGovernment feesAnnual registered agent feesBahamian business addressTelephone numberMaillng addressSubscription feesAssistance with establishing a bank accountassistance with completing the necessary baintroduction to an offshore bank officerfollowing up to ensure that the bank accounTotal other charges

62 THE 0fFSH.ORE HOHEY B O O KPriuacyOne of the principal reasons the RA has for going offshore (alongwith asset protection) is the quest for enhanced privacy. Concernedwith the monster computer databases in the U.S. and the apparentease of eavesdropping on the U.S. banking system and even the FederalReserve wire transfer network, RAS seek confidentiality and privacywith respect to financial matters by selecting a jurisdiction thathas no requirement to file public or private annual returns in thecountry of incorporation. Our civil justice system can also be emotionallypainful to the innocent defendant expending large amountsof money and precious time on defense of frivolous litigation.Choice of Name RestrictionsA name you prefer or are currently using in the U.S. may not beavailable offshore. For optimal privacy and asset protection, thename of the offshore company or entity should be different than theone used onshore. In cases where a business name carries goodwill,the benefits of using the same name offshore might outweigh thedisadvantages.I am aware of various restrictions on IBCS using the words trust,insurance, assurance, trustco, bank, bancor, bancorp (anything suggestingyou are a bank), sovereign, royal, imperial, financial, buildingsociety, chartered, chamber of commerce, cooperative, andfoundation, to name a few. Other jurisdictions limit names endingwith S.A., Inc., Ltd., Corp., and so on. Bermuda defines "restrictedbusiness activities" for the IBC and prohibits it from providing financialservices where that is defined as:BankingDeposit takingTrust businessInsurance businessCustody and administration of securitiesIn summary, I strongly recommend against incorporating offshoreusing the same name as your onshore corporation. It ties the

THEIHTERHRTIOHRL B U S I H E S S COHPRHtwo together, destroying the very privacy you wish to acusing a common name. The overriding factor is where theof the name is very significant in the worldwide communitMonetary ControlsSelect a haven that has no or minimal exchange controls,affords the ability to transact business in any major world cRpplying for Company formation and RqresmenA typical application to form and manage a basic IBC strshown in Figure 6.2. Figure 6.3 is for a more complex persoa three-company structure being offered by some offshoretants, but is not recommended. It is presented only for yourtion. The structure of Figure 6.3 consists ofthree boxes repran IBC and two os trusts. Initially, the IBC is formed. The IBthe settlor of an os trust (a foreign self-settled trust) calledthe IBC is the sole beneficiary (no U.S. beneficiaries) of TrustI (must be a foreign grantor trust) is the holder of more thancent equity position in the IBC. The settlor is taxed on all inan APT under IRC s679. As owner of the trust, the settlor owns. You should not just buy an IBC-you need to have a sen. selection process. That is, who to contact and where to lowhat you are trying to achieve. Each item is discussed indepth throughout the book.An IBE Comparison EhecklistI. Total out-of-pocket costs for incorporating a turnkincluding all nominees' fees, registrar fees, agent'sshare certificates and corporate seal, bank accountestablishment, banking services, remailing servicespresence (if you require), and so on.

64 THE OfFSH.ORE HOHEY B O O K2. Subsequent years' costs, includingand transaction costs.3. Availability of bearer shares.4. Requirement to keep books in loca5. Requirement for local directors.6. Requirement for local meetings.7. Public records of directors at compdatabase of registered companies mgovernment office.8. Disclosure of beneficial owner(s).9. Requirement of annual audit.10. Tax imposed on offshore profits.11. Company name restrictions.12. British-based common law legal sy13. Total privacy of banking informati14. Total privacy of records at companIS. Criminal penalties for the disclosubank personnel.16. Criminal penalties for the disclosuat registrar's office.To illustrate this comparison, let's take aIBC, which some think has major advantagI. Only one director is required.2. A minimum of two subscribers forhowever, these may be bearer shar3. A director may be another corpora

tion FormCONFIDENTIAL & PRIVATECOMPANY FORMATION INFORMATION FORMThe BahamasI. Proposed Company Name: (Give first choice and two alternatives)2. Type of Company:International Business CorporationRegular Corporation3. Capital &Types of Shares:Capital: (I) U.S.$5,000 divided into 5.000 shares of U.S.$I.OO each(2) Other (Specify)Shares: 0 Regular Bearer Other (Specify)4. Shareholders:Nominees to be providedIssued to: (Provide a list, if necessary)5. Beneficial Owners (For Internal Use Only):AddressesPercentage of Capital

66 T H E OFFSHORE HOHEY B O O KFigure 6ion Form, c ontinuedbiUnless otherwise specified, it will be a nominee. If otherwise, give specificname and address:!7. Reg~stered Agent in the Bahamas:Unless otherwise instructed, this will be a member of a legal firm in the Bahamas.8. D~rectors and Officers:Other, please supply:PositionIOff~cer9. Proposed Trade or Bus~ness:

THEI H T E R H R T I O H R L BUSINESS C O H P A H' lI11IIigure 6.3: Company Iand Agree ment FormCOMPANY FORMATION INFORMATION AND AGREEMENT'1 By th~s agreement("C, ofStreet City State ZIPI doldoes hereby agree to the creatlon of a company structure consisting of one Bainternational business company and two Bahamian trusts.1CORPORATE INFORMATIONjIilName of Corporation:Name(s) of Director(s):(First C(Second C, Name(s) of Oficer(s): (Pre\'I(SeII TRUV #I INFORMATIONName of Protector: PrimarySecondary1 TRUST #2 INFORMATION1 Name of Protector: Pr~mary SecondaryII- IBeneficiary of Trust:Primary Beneficiaries & %:Secondary Benefic~aries & %:,The Client should be prepared to make an ~nit~al bank deposit of U.S.$10.000.tion, determine which additional banking services you want Additional services,/deb~t cards. may require add~tional deposits to this or a separate bank account.,11 Mastercard or VISA debit cards 13 Personal Corporate1 O U.S.checkwr~ting ab~l~ty Securities trad~ng Other:No representatlons, warrantles or guarantees are offered or lrnplled that any company orstructure wlll be successful for any purpose whatsoever No representatlons, warrantles, or guare offered or ~rnpl~ed regard~ng the tax effects benefits or ~rnpllcat~ons lnvolvlng any companypany structure All persons are encouraged to seek competent legal and tax counsel In thelur~sd~ct~on where they res~deAgreed to by the undersigned this day of , [rear].ClientClient

68 T H E O F F S H O R E I O H E Y B O O K4. Board of directors' and shareholders' meetings may be conductedby electronic means such as telephone, fax, andE-mail.5. The IBC may trade in its own shares.6. The IBC may hold treasury shares.7. There is no record of the names of the shareholders anddirectors in the public registry.8. There is no requirement for filing financial statements orannual tax returns.9. The government has guaranteed an exemption from taxesfor twenty years.10. No rule against ultra vires activities. The IBC may beestablished for any purpose not prohibited by Bahamianlaws.11. The IBC may transfer its domicile, and conversely, anexisting offshore (foreign) IBC may transfer to theBahamas.12. NO prohibition concerning transferring assets to a trust.13. Registration and annual governmental fees are consideredlow.14. The IBC may act as a guarantor of third-party obligations.15. The IBC is not subject to Bahamian exchange controllegislation.16. A foreign government may not nationalize the shares of aBahamian IBC.17. A foreign government may not seize the shares of the IBCto satisfy a tax claim arising in the foreign country.Bahamas does limit the x~c from the following activities:

THE IHTERHATIOHRL BUSIIIESS C O I P R H Y 69I. Cannot carry on business with residents of the Bahamas.2. Cannot own an interest in Bahamian real property otherthan leased office space.3. Cannot carry on a bank or trust business.4. Cannot carry on an insurance or re-insurance business.5. Cannot carry out the business of providingoffice for companies in the Bahamas.Other Fo~ms of Companies\Although our major emphasis in this chapter is on the international1,usiness company, other forms of offshore companies are also avail-;~ble. These include:I. Local companies (the traditional corporation)2. Exempt companies (see the jurisdictions using the ChannelIslands model for further details)3. Special companiesLocal banking, with deposit-taking privilegesInsuranceMutual fundsShip ownershipInvestment management'These types of companies are discussed throughout the book.EndnotesI IRS Revenue Ruling 69-70 provides that a foreign trust may makecertain types of gifts to an American recipient without the recipient beingraxed.

The O f f F e Asset Protection TrustLWhen I go into any business deal, my chief thoughts are onhow I'm going to save myself if things go wrong.J. PAUL GETTYIN THE OFFSHORE community, the buzzword for the next millenniumis APT. APTS, when properly conceived, designed, and implemented,can be reasonably expected to create far better asset defenseand wealth preservation than the absence of planning.The current os or foreign asset protection trust (APT or FAPT) is. ~1 sophisticated, modern mutation of the basic trust established princ~pallyfor a specific purpose-asset protection. A basic trust isdefined as a legal structure in which title to and right of possessionof property (the trust "corpus") is in the hands of a trustee. Thetrust is established by the settlor, creator, or grantor. (I prefer thetcrms grantor and settlor and use them synonymously' in this book.Creator is a term unique in the U.S. lexicography and is used in theareas of pure trusts and business trusts.) Surprisingly, you need nothe the grantor-some other entity or person may create a trust onbehalf of your beneficiaries. This is commonly known as a nongrantortrust. The person or entity creating the trust and transfer-

72 THE 0fFSHO.RE H O H E Y BOOKring assets to the APT by way of a testamentary disposition or gift isthe settlor.With a discretionary APT, the trustee has been granted a power,the discretion as to whom from the identified schedule of beneficiariesdistributions will be made. Distribution may be made from principal,income, or both. This discretionary power creates the neededelement of asset protection. The trustee may be guided only with amission or purpose for the trust, hence we get the term "purposetrust."If the settlor of the foreign APT is a nonresident alien (NRA), if itis sited offshore, and if the assets are owned offshore, it will be characterizedas a foreign nongrantor trust under the IRC. This characterizationis true even if one or more of the beneficiaries include U.S.persons.The trustee has the right to manage, hold, and use the asset, andthe duty to protect it on behalf of the beneficiary. A commercialtrustee is usually required to be licensed by the jurisdiction. Thetrustee has a fiduciary obligation to deal with the trust assets fairlyon behalf of the beneficiaries. A trust is a legal entity, having theability to deal with banks in its own name and being required to filea trust tax return with the IRS and with the states in which it doesbusiness or has a nexus. It is an extremely flexible structure and mayserve many functions, so long as they are not specifically prohibitedby statute or law and are not in contravention of public policy. (Publicpolicy varies from country to country. Ask your counsel aboutspecific prohibitions of trusts in your jurisdiction.) Some of the powersof a trust (acting through its trustee) are:Taking title to or acquiring an interest in real propertyfor any lawful purposeManaging the real property owned by the trustTaking 'title to or acquiring personal property, such ascash, stocks, bonds, art, antiques, businesses,promissory notes, and other negotiable instrumentsManaging the business interests of the trustProviding better spendthrift provisions than aregenerally provided under U.S. lawsActing as a substitute for probate or a tool to avoid probate

THf O f f S H O R L I S S E T P A O T L C T I O H T R U S T 73Providing the offshore role of a trust protector forbetter trust administration. A second trust may act as atrust protector instead of using an individual. Sometrusts use corporate trust protectors.Use in lieu of a prenuptial agreement.instances where a party transfersproperty-into an offshore blindThe trust manages the assetstransferor. This prevents the separate property frombecoming marital property subject to a divorcesettlement.The trustee, as a fiduciary to the beneficiaries, has certain dutiesof professional competence:The trustee must validly settle (create) the trust.The trustee must act as a reasonable, prudentbusinessperson under any circumstances. He or sheshould know the nature and consequences of any trusttransaction. The trustee must be properly equipped, andqualified. If not, the trustee could be deemed negligentand held liable for losses to the trust.The trustee must take control over the trust assets fromthe settlor. Failure to do so could result in the trustbeing deemed a sham transaction. (How could there bea functional trust if the trustee does not have title tothe trust assets?)The offshore trust may not have been created for the primarypurpose of hindering, delaying, or frustrating existing creditors orclaimants of the settlor, but it may be implemented to achieve estateplanning. You can't legally relocate your assets offshore to dodgecollection on a judgment or avoid a lawsuit. Many trustees requirean affidavit or declaration of solvency of the settlor to that effect (seeFigure 7.1).Where there is more than one trustee, such as one U.S. and oneforeign trustee, certain tax issues may arise upon the resignation of thelJ.S. trustee. The IRC says a domestic trust, upon the resignation of theIJ.S. trustee, converts into a foreign trust, and that is a taxable event.

74 THE O F F S H O R L HOH[Y B O O KIt is no longer the same trust, and the settlor may have a transfer thatis subject to fraudulent conveyance rules. This, may encourage adomestic judge to impose contempt penalties and force the moneyback to the United States. (See the Anderson case on page 93.)The U.S. Living TrustMost readers are aware of the attributes of the living trust, a variationof the revocable inter vivos trust, but let's review its features:No tax advantages to the settlor or the estate.No asset protection.Revocable by the settlor until death. (This defeats itsefficacy as an asset protection tool since, during thelifetime of the settlor, a court can order the settlor torevoke the living trust under a threat of contempt ofcourt.)Settlor can be a trustee of the trust. (Although it'spermitted, I believe this should never be done for theAPT.)Can provide for your possible future disabilities andavoid a costly conservatorship hearing in court andavoid the "public" conservator being appointed tomanage the corpus of the trust.Created and effective while you are alive, but noteffective upon your death.The beneficiaries are "residual" beneficiaries-theytake what is left after the death of the settlor.The trustee has no duty to the creditors of the grantor,as would the executor of your will.The Evolution of the TrustLegal historians report that within an Egyptian tomb, vestiges of alast will and testament dating to 1805 B.C. were discovered. Trusts

THEOFFSHORE ASSLFigure 7.1: Der AffidI. At the time of the transfer, you are not instrust make you insolvent.You are able to meet yoyour liabilities.+2. You are not named as a defendant (cross-ddivorce or family law matter, or in any administrat3. You are not using the APT to try to avoid an4. The assets being transferred are not more tan appropriate percentage here) of your total asse5. The assets being transferred do not have asunder the laws of any country through which theof or in violation of the bankruptcy laws of any conFDIC and RTC rules, are not the product of any frauviolations,counterfeiting, kidnapping, hostage takingipation of an action for environmental pollution or clations. [Author's comment In other words, it is "cleaDate:Signature of settlor:were also used under Greek and Romatrust was so popular during the reign ofhad a trust court. Trust concepts continGerman, and French laws, but the rooderive from the English common law.established since the Statute of Uses waThe basis of American law is therespect to offshore trusts, since we arstanding of the law of trusts is essentialto interpret os trusts under U.S. laws. IAnderson case (see p. 93) to understandThe offshore islands of Western EIslands) were among the first used for otype of business, they provided somecharacteristics:

eiingbusquitionencfessandriernatiwortheanyforin mriesfleaThimortiona mpanjuryyouit byseemucyou76

T H E O f F S H O R L R S S E T P R O T I E T I O H T R U S T 77to me what I do to them every day, I would be offshore with myassets."The APT doesn't differ in many aspects from the traditional trust,except that it is traditionally offshore and irrevocable. The recognizedpurpose of such a trust is to be able to transfer assets out ofreach of creditors! However, the same litigious environment thatencourages use of the APT may also create a higher risk of litigationbecause of your use of the APT. There still is a mentality that if you 'have an offshore APT you must be "guilty" and hiding something inthe Caymans.As a general proposition, your expectation should be that theAPT is a vehicle for protecting your assets 'by holding them offshore;you should not assume that it is a guaranteed method for protectingassets in our litigious society. To avoid allegations of fraud withrespect to current creditors or claimants, you must be solvent at thetime you transfer the assets to the APT. I would conservatively measuresolvency by two different'tests, both of which you should meet.I. Bookkeeping test. The value of your assets should exceedthe level of your liabilities. For valuation purposes, assetsare valued at liquidation values (FMV), exempt assets areexcluded, and all contingent debts must be included.Assets to be transferred to the APT are excluded.2. Bankruptcy insolvency test. You must have the ability topay your debts as they mature. Many offshore trusteesrequire an affidavit or declaration of solvency to thateffect (see Figure 7.1).The asset protection trust is not necessarily used for tax considerationsand privacy. It is used primarily for what the name suggests:protecting one's assets.Ulho Heeds an OPT?Some time back, the Oxford Club defined some guidelines for determiningasset protection need. Following is a paraphrased version of

78 THf O F F S H O R E HONEY B O O Ktheir list. If you say yes to two or three questions, you might needan APT.APT:Are you in a profession with a high risk of litigation,such as physician/surgeon, manufacturer, commercialarchitect, or CPA? YOU know who you are by what ishappening to your peers.Do you have a net equity of more than $~OO,OOO freeand clear in your residence?Do you have liquid personal property or assets with avalue of more than $~oo,ooo?Are you a general partner in a real estate or otherhigh-risk partnership?Are you an officer or director of a U.S. corporation?Are you a high net worth person contemplatingmarriage or remarriage?Do you have a teenager with a heavy foot on the gaspedal?Do you have a high financial profile or perception ofhigh net worth that would attract litigation?Do you lease out equipment or rent out commercialproperty, or are you an apartment owner?Have you been underinsured or uninsured for a periodof time?Some of the major reasons to consider a discretionary offshoreIt responds to your reasonable suggestions (through"letters of wishes") while you are still alive and have yourfull faculties. (Of course, this would be with the consent ofthe committee of advisors and/or trust protector.)It provides for testamentary distributions offshore asan alternative to U.S. trusts. It generally insulates yourprovisions for future protection of your family afteryour death. It can pass assets on to your beneficiaries.It could reduce or avoid probate costs and may save onestate taxes.

It enablesin investmcitizens. Tearlier anIt gives yoagainst yoCoupled wplanningIt can proeducationIt can beavoidanceIt providethe demisTo protect(entrusted to a pIO manage it) osicher transferrewnrch. If the asrntity-and if th;I way to assert jin the mind of t;1 temporary resthe issue is ultimnn order that recrrate you untilprison in the U.Although k(fnrnilv settleme

80 T H E O F F S H O R E I O N E Y B O O K\indenture), all APTS essentially serve the same purpose, and I treatthem collectively in this book as APTS.The Parties to the BPTThe parties to the APT are the same parties as in the basic trust(except for the trust protector and the agent).I. The creator, settlor, or grantor is the person who created orsettled the APT. (The word "person" as used in this book refers toan individual [including a third party or "straw man"], business;company, partnership, corporation, IBC, LLC, or any other entity withlegal standing recognized in the jurisdiction of its creation. A soleproprietorship is not a person, as it "speaks" through its owner.) Iprefer the term settlor. I believe that the settlor should not have theright to directly replace the trustee. The settlor could encourage thetrustee to resign by expressing his or her dissatisfaction with the wayin which the trust corpus is being managed in a private letter ofwishes. If a reasonable trustee could not remedy the concerns, Ibelieve that he or she would likely cooperate and resign. He or shedoesn't need or want adversarial scenarios with the settlor. The trustprotector then could appoint a substitute trustee. Or there could bea previously appointed "standby trustee" waiting in the wings to takeover the role. Others appoint three joint trustees at the onset so thatthe resignation or temporary absence of a trustee does not create aproblem.Trust language may not provide binding advice to the trusteeand trust protector, but advisory language instead. It can come fromthe settlor or the committee of advisors. A settlor who desires toprovide an indication of his or her inclinations traditionally deliversa letter of wishes to the trustee. Communications by letters of wishesmay be an ongoing process with a discretionary APT as circumstanceschange (a birth, death, wedding, divorce, or separation; aprovision for a person with disabilities; education and health care forbeneficiaries; changes in the U.S. tax laws or dual-tax treaties). Thesettlor is already deemed to be the owner of the IBC under the IRSattribution rules. All income earned by the IBC, whether distributed

T H E O f f S H O R ~ A S S E T P R O T E C T I O H T R U S T 81or not, is taxable to the settlor as the owner. The settlor is deemedto be the shareholder of the CFC.The settlor may perform indirectly by acting as director or officerof an offshore IBC that was created for the purpose of managingthe assets of the trust. He or she could receive compensation,deferred compensation, perks, or expense reimbursement, some ofwhich would be taxable upon receipt by a U.S. person.2. The trust protector, the watchdog over the trust, overseesthe trustee and the trust corpus to assure that the trustee fulfills theobjectives of the APT. There may be more than one protector. Theprotector's duties include providing legally binding counsel andadvice to the trustee on interpretation of the trust deed, construingthe settlor's letter(s) of wishes, and deciding upon the appropriateaction after receiving advice from the committee of advisors (if onewas authorized and in effect). The protector is not a trustee anddoes not manage the APT, but is an advisor to the trustee. Thetruste'e recognizes the veto power of the protector. In an efficient, there is an ongoing dialogue between the two parties, bothatt, "'5 mpting to fulfill the wishes of the settlor with concern.for treatingall beneficiaries fairly and equitably under the terms of the APT.3. The trustee is charged with the duty of capital conservationand income accumulation for the beneficiaries. It is generally rec--ommended that the trustee not be a U.S. resident or citizen. Ideally,the trustee should be a U.S. nonresident alien: This precludesthe U.S. courts from issuing court orders to the trustee. In largerestates (with a larger corpus) there could be multiple trustees, allwith trust powers, and even a U.S. trustee among the group of jointtrustees. Use of a U.S. trustee should be carefully researched by thehervice provider or personal planner because there may be expressprohibitions in the tax haven. Many offshore trust companies maynot want a U.S.-based trustee. Some APT legislation specifically prohibitsU.S. trustees. Furthermore, the Statute of Elizabeth (see p. 87)override provisions may not apply with a U.S. cotrustee. If an APTwith a U.S. cotrustee were under attack within the U.S., the U.S.trustee should resign. The trustee is usually given full discretion with ,respect to treatment of the beneficiaries and asset disposition with -

82 THE OFFSHBRE HOHEY BOOKthe consent of the trust protector. Choose someone you know tobe the trustee, or let your consultant or planner (if trusted ,absolutely) choose the trustee.4. Beneficiaries could include a family foundation, a favoritecharity, or children born or unborn of the marriage(s) or future marriage(~)of the settlor. A discretionary trust with full powers in thetrustee grants the trustee' the right to add new beneficiaries and substituteassets of equivalent value. Although the beneficiaries canrequest distributions, the distributions are at the sole discretion ofthe trustee and his or her interpretation of the trust.The beneficiaries should not generally include the settlor. (Notethat some lawyers believe that if an APT is truly discretionary, thesettlor can be a beneficiary.) If the settlor is a beneficiary, there is littleasset protection. However, it could serve alternatively as an offshoreliving trust or testamentary trust.5. Behind-the-scenes service providers and offshore consultantsmay be known only to you, for your privacy. They know theU.S. and offshore technicalities and APT requirements. Further, theyhave the ingenuity to formulate a structure that won't become obsoleteand fully takes into account your personal situation and presentand future needs. You may wish to pay by cashier's check toavoid having a permanent banking electronic record of a checkdrawn on your personal or business checking account.6. Is the asset or portfolio manager for the trust's assets givenfull discretion as to investment decisions? If not, is there a committeeof advisors to guide him or her?7. A committee of advisors to the trustee is optional. When oneis established, the settlor can be its chair. The committee's opinion isnot binding upon the trustee and is treated as advisory. It is not legallyincumbent that the trustee honor the advice of the committee becausethe trustee must act in the best interests of the beneficiaries.8. The Small Business Job Protection Act of 1996 establishedan IRS reporting requirement and party to the trust, the agent forthe foreign trust. Since a foreign trust is now required to provide

THannual reports to thetrust is required to apas an agent to whom tSee Figure 7.2 as a typThe APT is very prrecorded. (But some jsometimes because theeral requirement to regdictions, however, reqa stamp to the trust, buthe APT as an unrecorsited in a tax-free jurireports, or other requwith a valid court ordcompelled to disclose tthe trust.A TruHow may an advisor eeign country so that ittax purposes? Some ocreating the trust withThe trust deed then inof the two U.S. trusteethe trust would becomthe domestic trust becevent, specifically a caThe APT and its compare complex to formumultiple professionals)

84 T H E OFFSHORE H O N E Y B O O KFlqure?PUP@& m rN.nr.l~T&W/U/AN % GMflNm-nl",r.-AUTHORIZATION 01: AGENThereby expressly authorrzesto act as ~ ts agent solely for purposcs ofscctlon 7602,7603, and 7604 of thc Internal Revenue Code wtth respect to any requestto exnmrne records or produce restimoliy rclated to tlie proper trealmcnt of amountsrequ~red to be taken Into account under the rules of sectron 6W@)(l)(A) or to anybummons for such records or test~mony I certrfy that I have the authonty toexecute thrs author~wtron of agent to act on behalf of @@P&E fl~rN.nrdiwwT*Type or prlnt your name belowW/&& Q 6R.bvy /23-4!!-6mrnN.nl)6-, CI 9/Z?y&~l& R w accepts thrs appointment to act as agent forN-d*~PZWCE ~rfor the above purpose I certdy that I haveN l a d ~ m utlre authonty to execute tha authorizatron of agent to act on behalf of m !ifrZ&WdhclsmTMIand agree to accept servrce of process for the above purposes.Type or pnnt your name belowWc LIH R 6HT /23- 73-6.259llN,U.",l/23 Mj+dreasonable fees. Don't forget the cost of maintenance services andannual reporting dictated by the IRC in the subsequent years.Reasonable fees for setting up an APT are divided betweenonshore and offshore and between the first-year setup costs and subsequentannual fees. Setting up your offshore structure properly will

T H i O F F S H O A E A S S E T PAOTECTIOH T R U S T 85not be inexpensive. But consider the extrinsic benefits. The larger theestate going offshore, the more cost effective going offshore becomes.The question is, How much will ultimately go into the structure?Measure costs in terms of value added as well as the subjective benefits-youcan get ripped off.Some typical ranges of offshore fees you may encounter for anAPT are:First-year acceptance fee of $1,000 to $5,000 forsetting up the trustAnnual trustee's fees of $1,500 to $3,000, in addition tothe setup feesWhat should you get for your money?A professional acting in the capacity of,trustee for theyear. b.1A brokerage account opened for investing by thetrustee or asset manager on behalf of the trust, ifrequired.A trust bank account opened.Extraordinary services charged at a flat rate negotiatedwith the trustee or at an hourly rate of $100 to $300.Out-of-pocket expenses-for example, air courier,private telephone lines, E-mail accounts, banking fees,or wire transfer fees.Trust TerminologyThis section of this chapter offers some legal and technical discussion.The Rule Against Perpetuities [-IIn English common law jurisdictions, equity abhors the vesting anddistribution to the beneficiaries that are too distant in time. 0 s taxhavens have adopted longer and therefore more favorable rules withrespect to remote vesting than those found domestically (+). For

examManruleperioyearsdictiBfor aceptbeyowaitthesschoan AcomfBasictainthe tdomiintoCantrustdifficstripFraudder, ofraudintoThesI86

IHE O F F S H O R i ASSET PROTECTIOH TRUST 872. Subsequent3. FutureItem 3, future creditors, is the most difficult to address. Thest:ltutory laws of the tax haven determine the prescribed treatmentfor future creditors. Get professional help with this blurred issue. Forrxnmple, what is the difference between a subsequent and futurecreditor? A tough issue to put in black and white.Some tax havens have recognized the different classes of creditors:Bahamas, Bermuda, Cayman Islands, Cook Islands, Cyprus,(iihraltar, Mauritius, Nevis, and Turks and Caicos Islands.The Statute of ELizabethPBIn 1570, the English common law jurisdictions b an to contendwith the restrictions imposed by the Statute of Elizabeth, which was~nrsnded to defeat and set aside transfers of assets and propertytvhcre the transferor's intended purpose was to frustrate, hinder, ortlcl;iy future but unknown creditors or claimanw3 Tax havens that.ire more favorably inclined to trust business have enacted legislationwith provisions to override the Statute of Elizabeth. An old Englishc..~sc' started the confusion by blurring the distinction between subtrclucntand future creditors, establishing the principle that therew:~s no difference between the two. The override statutes of the. niorc. progressive tax havens remedy this problem. CJearly an immecliatcbut subsequent creditor should be treated differently than atl~stant future creditor.'The following tax havens are known to have enacted overrideprovisions (+): Bahamas, Belize, Cayman Islands, Cook Islands,( ;il>raltar, Mauritius, and Nevis.Forced Heirship;I settlor, you cannot deprive the heirs to your estate (your wealth.~titl nssets) of their rights according to local law (the state in which\OII reside), except where just circumstances may exist to disinherit~licm. Local laws may require you to pass certain percentages of your

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THE OFFSHORE flSSFT PROTECTIOH TRUST 89What if the os trustee is delivered a demand letter from a U.S.attorney, perhaps even one that includes a copy of a valid andenforceable U.S. court order with respect to the settlor? The trusteemay ignore it (and usually does), because the foreign jurisdictionhas no standing in the tax haven. The U.S. attorney is left with adifficult financial judgment call: Does he or she retain local counselin the tax haven and file a new suit? If the statute has already"run," the attorney may be unable to effectively file. Does this givehim or her the impetus to convince the judgment creditor to settlethe matter?Assuming you have a bulldog for counsel, a highly emotionalplaintiff, and a "let's sue the bastards" attitude, what do you do?You exhaust them emotionally and financially bankrupt them to apoint where they will settle with you. How? By using duress provisions,flight provisions, recandle provisions, "ransom" clauses, lettersof wishes, and the "Cuba" clause, to name a few.Actionable Fraud and the Badges of Fraud'The APT and the settlor may be attacked on the basis of transfers ofassets made to the APT under circumstances alleged to be fraudulent.Fraud is considered under three different bodies of law:I. The state's laws2. The bankruptcy code3. The offshore fraud laws of the applicable jurisdictionThe factual situation on the day of the transfer of the asset is toI)c considered. Was there an actual intent on the part of the settlorro hinder, defraud, and delay the creditor by the asset transfer? Isthere a cloud of fraudulent conveyances? Was the fraud hard or soft?Hard fraud is defined as a finding that the settlor actually intendedto hinder, defraud, and delay the creditor, whereas soft fraud is aconstructive fraud ascertained by the facts. For example, soft fraudcould occur if you rely on facts provided by others that turn out toIIG fraudulent assertions.

90 THE OFFSHO'RE MOHLY BOOKThe so-called badges of fraud are also referred to as the elevencommandments and the indicia of fraud. In nonlegalese, they aresummarized as follows:I. The settlor made a transfer of an asset before the APT wascreated to an insider such as a family member, friend,close professional, or employee.2. The settlor continued to assert control over the asset orretained possession of the "transferred" asset.3. The settlor made the transfer to remove the asset from hisor her estate or to conceal its existence.4. The settlor failed to receive "fair" consideration for thetransferred asset. It must be an equitable exchange or itfails the "smell test."5. The transferred asset was concealed from the creditor.6. The transfer was made while the settlor was beingthreatened with litigation or after actually being sued.7. The settlor transferred almost all of his or her assets tothe trust.8. The settlor was insolvent or became insolvent at the timeof the transfer or shortly thereafter.9. The settlor had absconded.10. The transfer was made just before or after the settloraccrued new debt.11. The settlor transferred all of his or her business assets to asecured creditor, who in turn transferred them to aninsider of the settlor.How many badges of fraud give rise to a fraudulent conveyance?If they are major, only one or two are necessary.

T H EO F F S H O RDuress PYour well-drafted trust deed andrion and guidance to the trusteeduress arises when a U.S. demanthe os trustee. The duress couldwith a copy of a U.S. court order;I claim against the os trust fromof duress is present if a copy of aI rustee or, even worse, served up~llc U.S. In the latter case, the UI rustee and the trust. We will ignI o the legal obligations of an os tc.~gn" demands or court orders.Basic trust language and the siIO he trustee to automatically ignor court order" creating a situatirllis wryly as a ransom clause. Simfor. are bound and/or advised to di.lny entity, including the settlor, inAs a typical scenario, at theproblem, the protector could diriccs to another jurisdiction-evenne. The trust is also rekindled'tlon other than where the assSettlor in Cohcc the settlor has irrevocablyIlc has voluntarily yielded contrtllrpo,$ition of assets by a settlor111 I'uture claims against him an aOnc example of a condition o~tij: n letter to the trustee as showWhat does the trustee do? W,:II.IRC previously and unequivoc

92 THE O f F S H O R E H O H E Y B O O Kre 7.3: Con dition of Duress Sample letterCEr 1Re: The Smith Family Protective TrustDear Trustee:Unfortunately, as a result of frivolous litigation and a runawayjury verdict, there was a large judgment entered against me inthe Superior Court in California on February I, 1999, on behalfof an undeserving litigant.The appeal failed and the judgment has become final. The judgmentcreditor is seeking to collect on the judgment. I have beenserved with the attached court order. My attorney advises methat it is a valid court order and I must comply with it. It ordersme to repatriate my assets and direct you to return funds in theamount of U.S.$~,ooo,ooo to satisfy the judgment. I have beenordered to satisfy this judgment with the assets offshore thatare of a sufficient sum to do so.I have no interest in being held in contempt of court withrespect to this order and hereby direct you to liquidate any andall assets of the referenced trust to comply with this bona fidecourt order.Your immediate and prompt attention to this order would beappreciated. Please advise when the funds will be wire transferred.Sincerely yours,[signature]1

94 T H E O F F S H O A E B O H E Y B O O Kattorney for both allowing the couple to name foreigners as replacementtrustees without his prior approval and failing to get prior commitmentsthat the new trustees would return the funds.The Andersons were held in contempt of court for failing torepatriate assets (the funds) from their offshore trust and jailed. Thejudge in this case remarked that there is nothing wrong with "immunizing"oneself (nexus of time test) but the facts here were egregiousabuses of the asset protection system. So abusive that the judge consideredreferral of the matter to the Attorney General or to the FBIfor possible perjury and suggested that the Andersons' bankruptcyattorney could be sued. This case is an example of much being donewrong, by the Andersons and by the judge.Upon appeal, the contempt was upheld because the Andersonsfrustrated the orderly administration of the courts. A new concept!If you would like to read more about the Anderson case, go toJay Adkisson's website at http://www.falc.com.Three cases from the bankruptcy courts are must-read cases.Bankruptcy judges are attacking transfers to offshore APTS as beingtransfers that "violate the public policy" of the state in which thecreator was domiciled. The three important cases you can read in thelaw library are:Portnoy, cite: 201 B.R. 685 (1996) (Translation:Portnoy is the common case name, 201 refers tovolume 201, B.R. means Bankruptcy Reporter, 685 isthe starting page, and 1996 is the date the case wasdecided.)Brooks, cite: 217 B.R. 98 (1998)Lawrence, cite: 227 B.R. 907 (1998) and its progenyFlight Provisions: The Fleet Clause or the Cuba ClauseOne could provide for political instability, major changes in APT orIBC laws (very unlikely), or onshore duress with automatic migrationor discretionary flight language. The language providing for theseevents is sometimes referred to as fleet or migration for duress or theCuba clause for political instability causes. Flight results from oneor two of these specified events:

I. Major changes inhaven affecting baresulting in the tranother IFC-typicin political partiesoffshore parties, oEnforcT H E2. The occurrence ofandlor trust proteand/or trust protethose duties.For asset protection,re designed to be considcvents demand. AutomatIKS consider the APT a foI1.S. tax ramifications buA principal test for d(ic or foreign hinges on11.11st deed. A U.S. court+ion over the administratvides that a U.S. court'ssupervise the administratruse the trust to migrattrust to migrate only in trhcre is widespread confI hc 1J.S. [Treas. Regs. 30havens that don't aut'incent, for example) arooo) legal action (a cas.rnrute of limitations hasIII rhe tax haven. The stwhen it is discovered by' .n discovered, or whencnt to hinder, delay, o

96 T H E O f F S H O R b H O H E Y B O O KConflict of Laur PrinciplesSince most structures are multinational, when litigation arises, itmust be determined which country's laws should be used by thecourt. In a Connecticut case involving two offshore spendthrift APTS,the judge held that Connecticut law applied. The judge disregardedthe situs of the two foreign trusts, Bermuda and Jersey, which bothprovided that the laws of their respective countries were to be used.Instead, the judge ruled that Connecticut's conflict laws applied. Inreality, the judge likely suspected that the transfers of assets to thetwo APTS occurred within eighteen months of the filing of the bankruptcy,probably created in anticipation of the bankruptcy filing.The lessons to be learned here are:I. When a judge suspects the motives of the witness, he orshe might shape the laws to suit the case and facts underhis or her interpretation of what is equitable.2. Transfers of assets that appear to have been principallydone in anticipation of a claim by a creditor will beconstrued as an act to hinder, frustrate, and delay. acreditor's rightful claim. This is called the nexus of timeissue, and it will not be tolerated by a judge.TechnicalitiesThe following items are very complex technical issues that should beaddressed with your os planner and service provider; they are notsuited for do-it-yourselfers. Although directed toward APTS, theymay apply equally to other os entities.I. Settlor being a beneficiary,. trustee, cotrustee, orprotector of the APT. Automatic migration whereduress, as well.2. Level of control of settlor over the APT or IBC.3. When the APT is under attack by a creditor:

T H EO F F S H O R E A S S l T PROTECTIOH TDegree of recognition by the tax haven of forejudgmentsLocal standards of law for the blocking or freof assets located thereStandard of proof required in the local jurisdiUpon whom rests the initial burden of proof?the burden shift, and if so, when?If the creditor is successful in setting aside thefraudulent transfer, does the APT remain valid4. Efficacy of the "choice of law" selection in the AGenerally, factors to be considered in the choiceanalysis would be: English common law, StatuteElizabeth abrogated, stable economy, and experiprofessionals.5. Where flight of the APT has resulted in a new juwhat level of protection will be afforded by theAPT in the redomiciled jurisdiction?In summary, you need a trust you can trust, a proven stshield and a base for operating other investment interestsfor asset protection, estate planning, or business planningStatutory lmprouementsAs U.S. and IRS APT litigation tests the efficacy of offsnew issues must be addressed by the U.S. and foreign cofor the first time. For example, how does a foreign couforeign judgment providing for treble damages or punitivWhat are the powers of removal of the trustee vested intor? Are trust principal and trust income treated differeEndnotesI Previously, a fine distinction arose in the case of a foreigntrust created by a third person who was a nonresident alien, a"nominee settlor." Although the nominee (third person) set

98 THE"legal" settlosettlor," sompersons, othno longer wtrustees or w2 A MaIt enjoins thethe enforcem3 The lations as in"badges of ffer to an insferred? Wasthe transferotransferor bU.S. as the Uthe Uniform4 Re: Bu

Ofshore Banks and RelatedBanking SeruicesSo OFTEN PEOPLE with offshore accounts are viewed with suspicion.Many people, even U.S. citizens, have established trusts and holdsome of their investments overseas for the sake of tax deferr'al, greed,protection against future heirs, or fear of confiscation due to litigarion.The information contained in this chapter will help us undervtandwhy we need offshore financial centers for legitimate business- reasons.The leading offshore centers vary widely in business volume,sophistication, market penetration, and breadth of services. The CaymanIslands is perhaps the most advanced, having edged past thellahamas in recent years. Panama is one of the oldest, but has fallenvictim to political instability and the wrath of the United States. TheNetherlands Antilles is another veteran, and another casualty of U.S.clispleasure. Its upstart neighbor, Aruba, is now vying for the same1)usiness. Barbados and the British Virgin Islands have recently scorednotable successes. Anguilla and the Turks and Caicos Islands hope toemulate their successful British neighbors.Most of these places are small, rather isolated tropical islandswhere the pace of life is, as the tourist brochures say, unhurried-they

O F F S H O R I B A N K S R H D R I L R T E O B A H K I H C S I R U I C E S 101I. An individual wishes to escape from onerous or capriciousrestrictions imposed by his or her government.L. Business owners want to allow corporate diversificationinto activities not permitted within their countries.1. Companies or individuals wish to avoid foreign exchangecontrols. .4. Companies and individuals want to avoid restrictions onforeign investments.5. Moslem countries prohibit the payment of interest forreligious reasons, thereby requiring unique structuringonly available offshore.O. Financial asset holders wish to guard against high inflationin other countries.7. Owners of wealth desire a stable mechanism to transfertheir wealth to heirs without taxation and to be free ofthe constant rule and tax changes in certain high-tax andhigh-regulation jurisdictions.H. Asset owners need a safe haven against political upheavaland wars.(1. Companies or individual citizens may need a properlyestablished contractual intermediary for profit captureaway from high-tax and high-regulation jurisdictions.'I'llc desire for these types of services is empirically evident by4111. phenomenal growth rate of the offshore institutions in the last'8 II vcars.Industry Trends...II, c World War 11, the demand for offshore financial services has1,t#ttv11 rnpidly as a result of higher taxation and expanding regula-I-$~rlr in many of the industrialized nations, as well as political insta-~p.111v in some of the emerging nations. The rise of multinational

102 THE 0FFSH.ORE H O H i Y BOOKcompanies, whose primary allegiance is to shareholders rather thanto any particular country; the expansion of world trade and crossborderinvestment; and the increase in both personal and corporatewealth also helped to stimulate this growth. Revolutionary advancesin technology and communications have also assisted the growth inoffshore financial services, erasing the barriers of time and locationfor even the most remote parts of the world.Until recently, offshore financial centers were commonly describedas tax havens, a term that many offshore depositors disliked becauseit suggested they helped people to circumvent the laws of high-taxcountries. But the term accurately reflects the genesis of the business,and remains a condition of its continued existence. No offshore financialcenter could hope to survive if it imposed any significant levels oftaxation.Tax evasion is probably one of the oldest pastimes, and there isno doubt that offshore financial centers are sometimes used for thispurpose. But many offshore activities could more accurately bedescribed as tax planning-using legal mechanisms to reduce oreliminate taxes on income, wealth, profits, and inheritance, or toaccumulate tax-free income offshore, pending repatriation to a taxablejurisdiction.Such arrangements are often used when the income or assets inquestion are international in nature. For example, an author orinventor who receives royalties from many countries may have thempaid into an offshore account until the funds are needed at home.International mutual funds may be registered offshore to minimizeregulation and boost investor returns. Some of the more popularcountries for mutual fund registrations, and their percentage of themarket (as of late 1997)~ areLuxembourg (63%)~witzerland (10%)Ireland (6%)Netherlands Antilles (5%)Cayman Islands (4%)BVI (3%)Jersey (3%)

OFFSHORE B A H K S AH0 RELATED BANKIHG S E R U I C E S 105IEngaging in image-building advertising in local andinternational financial publicationsOffering courteous and competent services tocustomers and regulatory authoritiesHaving shareholders, advisors, employees, andindividuals of competence with good reputationsMaintaining a very strong and conservative financialstructureAdam Smith's economic theory of jurisdictions with a competitiveadvantage holds true: the offshore financial centers exist becausecapital flows from where it is heavily taxed, controlled, or constrainedto areas where it can work for its owners.The Sluiss Bankinp SystemThe modern Swiss banking industry got its start when the Huguenotsfled France in fear of their lives and took their Money withthem. This first large influx of immigrants and money into the sleepycantons that compose the Swiss federation laid the foundation for itsidentity as being both politically neutral and a financial center. Sincethen, ?s war after war has been waged over Europe, the Swiss havebenefited from the capital flight of all the nations at war-victor orvanquished. In modern times, with the improvements in travel andcommunications, wars, political instability, high taxes, and anythingelse that drives capital flight, the flight capital can be found landingin Switzerland or any one of the other modern offshore financialcenters.Historical Banking SecrecyThe right to banking secrecy in Switzerland was real and not a legend.The right to privacy is expressly protected pursuant to Article28 of the Swiss Civil Code, and there is a duty to observe the confidentialitytraditionally inherent in the contractual relationshipbetween a bank and its customers.

106 T H E O F F S H O A E M O N E Y B O O KThis obligation to secrecy is based on civil law, the breach ofwhich can lead to the bank having to pay damages. According toArticle 47 of the Federal Law on Banks and Savings Banks (BankAct), a violation of banking secrecy is a criminal offense punishableby imprisonment for up to six months (if committed intentionally)or by fine (if committed by negligence). Furthermore, a bank violatingbanking secrecy may be subject to administrative sanctionsimposed by the Federal Banking Commission, which may, in veryserious cases, lead to the bank's license being withdrawn and thebank being liquidated.Breaches of Banking SecrecyA bank must not disclose to third parties-whether private persons,companies, or governments-information subject to banking secrecy,unless authorized to do so by statutory provisions of Swiss law or bySwiss court orders.There are key exceptions to the veil of secrecy. Contrary to opinionoften held abroad, Swiss banking secrecy is in no way absolute;it can be overridden by statutory provisions that compel the bank todivulge information. Such rules for disclosure of information-usuallyin a limited scope-can be found in Swiss inheritance law, inprocedural laws dealing with debt collection, and in bankruptcy law.The most widely known restrictions of banking secrecy are in bilateraltreaties and the laws and regulations dealing with legal assistancein criminal matters. In criminal investigation, banking secrecycan be lifted by court order, for either domestic cases or internationalcases. Legal assistance in criminal matters is only granted ifthe country requesting legal assistance grants some form of reciprocityfor the Swiss. In tax matters, legal assistance is available toforeign public prosecutors only if the investigated violation of foreigntax laws would be qualified under Swiss law as tax fraud-notjust tax evasion. Tax evasion is simply the failure to declare incomeor assets for taxation; tax fraud is distinguished by alleged fraudulentconduct.Recently the IRS has begun shifting its special task force to taxfraud and conducting some major-scale audits. (This is the same

108 THE O F f S H O R E M O N E Y B O O KThe Caribbean and Heighboring HationsThese offshore financial centers (o~cs) include the Bahamas, Bermuda,Antigua, Anguilla, Turks and Caicos Islands, Aruba, CaymanIslands, St. Kitts and Nevis, British Virgin Islands, and Belize. Thesecountries, in most cases, have been nation-states longer than the U.S.In fact, it is on St. Christopher Island in the Bahamas (don't confusethis with the island of Saint Christopher, or St. Kitts, of St. Kittsand Nevis) that Columbus is thought to have first landed in the NewWorld. (Curiously, they don't make a big deal about the event. Needa better PR department, I would think.)IThese countries have been experiencing a long-term boom in the1 operation of offshore financial centers. Some are newcomers to thegame, such as Belize and Anguilla, and others are old-time handssuch as Bermuda, Bahamas, and the Cayman Islands. These nationstatesoffer a great deal to the U.S. citizen-financial security, politicalstability, and a nice place to visit.The newcomers have much to offer. Their laws are very similarto the laws in the Cayman Islands and Bahamas, with the addedbenefit of not having an entrenched, expensive bureaucracy to support.These countries offer the maximum flexibility allowed and allof the opportunity at less cost than one would find in London orNew York. Belize, however, has the edge. It is a stable country, possessesindustry other than tourism and finance, and is readily accessiblefrom all of North and South America.The pressure being exerted from the United States (the world'slargest offshore financial center, if you don't live here) and GreatBritain on the OFCS around the world to curb the granting of chartersto banks in these locations has had an effect. The application fora bank charter in any British protectorate requires the possession ofa banking license, from another location and at least two years ofoperational history.If you are offered bank shares in an offshore financial center,always proceed with caution as with any investment. But seriouslyconsider the purchase of shares in an institution you may never beable to purchase shares in again. Bahamian and Caymanian bankstocks have been growing at an exceptional rate for the last four years.1

110 T H E O F F S H O R F M O H L Y B O O KOffshore Credit and Debit CardsOffshore bankers are competing with American bankers for yourprofitable credit card business, and I believe the offshore credit card,having the advantage of greater privacy of transactions, is the winner.There is nothing illegal about possessing and using an offshorecredit card, as long as it is not being used for tax evasion purposes,to use offshore income for personal purposes.If you truly crave privacy, avoid using your onshore credit cards.They provide an ongoing permanent electronic diary of where yougo, what you buy, how much you spend, where you shop, whomyou telephone, what telephone companies you use, where you entertainand vacation, which travel agents and airlines you use, and onand on. Charge your discreet expenses offshore! Those involved inmajor mergers and acquisitions may use their companies' offshorecredit cards to disguise their traveling.U.S. credit card companies (card issuers) analyze credit card dataand market it for profit to any firm interested in demographics, consumerprofiles, and psychographics. How do you think all thosecredit card offers with the introductory teaser rates get mailed toyou? Buyers for this data also include telemarketing firms, insurancesalespeople, mail order houses, the IR~,private detectives, andeven competitors of your credit card issuer. I am not aware of anylaws prohibiting selling this data at this time. Any assumption ofthe privacy of domestic credit card transactions is a fallacy.Recognizing this trend, more and more people are acquiring offshorecredit cards for private needs, not for everyday shopping. Becertain that the os issuing bank is strong and in a jurisdiction thathas strong banking privacy laws; not all os credit cards are equal inthis respect. Onshore credit reporting bureaus do not legally haveaccess to the os card system.Most offshore credit cards are in reality secured credit cards ordebit cards. This is because you don't have credit established offshoreyet. Your card line of credit is,generally between 50 percentand 66.66 percent of the amount on deposit in a low-interest-bearingsavings account with the offshore bank. The credit charges areusually charged against the bank account. It is wise from the privacy

Your bank's letterheadJanuary 12, 2000Bay Street BranchP. 0. Box N835o --------- iiNassau, BahamasilAttention: Bank ManagerReference: John Q. PublicTo Whom It May Concern:This letter is to verify that our banking customer, John Q.Public, has had an account with our bank since February ,14,1992. Mr. Public has handled his account in a satisfactoryVice PresidentMany offshore banks now require their foreign customers toexecute a consent form (see Figure 8.3 for a sample from CanadianImperial Bank of Commerce in Nassau). Royal Bank of Canadarequires the disclosure of the beneficial owners on any corporatebank account. The release enables the bank to provide bankinginformation to the governments (read: IRS, Revenue Canada, orInland Revenue) of other jurisdictions. This overrides the banking~rivacv laws and obligations of confidentialitv of the Bahamas.

114 THE OIFSHOAL M O H E Y B O O KIIpII jtFigure 8.2: R More Detailed Bank leference Letter'1January 12, zoooriI Lloyd's of LondonBox ir4GTGrand Cayman'I Cayman IslandsRi/ To Whom It May Concern:The XYZ BankI have had the privilege of knowing personally andprofessionally for over - years. Mr. has beeninvolved in a business banking relationship with our bank since. I have personally advised him, and our bank hasrepresented him and financed many of his business dealings.My personal experience with him indicates that he is capable,professional, and of good moral character. I have the highestregard for Mr. and recommend him highly. Should theneed arise, I would be happy to discuss further and confidentiallythe specifics of my relationship with Mr.If you have any questions, do not hesitate to call me at/I$,, Sincerely,J14:i Joe Banker: Vice PresidentBThe European Commission (EC) would like to standardize bankingamong its member countries, and numbered banking is not compatiblewith its agenda. Even though the glamour of the chop blockaccount, the Austrian Sparbuch account, and the numbered account

O F F S H O R E B A N K S A H D R E L A T L D B A N K l N G S E R U I C E S 117:I personal password. Walk in with the passbook and the password,and all the money is yours. Forget the password, and say good-bye toyour money.The Wertpapierbuch account, a securities book account, wassimilar in certain respects to the Sparbuch. It previously allowed youto purchase and sell stocks and bonds with comparable privacy.Effective July,.~, 1996, Austria banned this form of anonymous securitytrading account to comply with EC initiatives. Only new tradingwill be prohibited; standing accounts will be permitted so longas there is no new trading.The Numbered AccountOlder novels and movies often portrayed the intrigue of transferringhuge sums of money merely by providing an instruction on anumbered account. Those days are long gone. Strict rules imposedin all industrialized countries require banks to know their customers.Monetary Policies and Exchange EontrolsMonetary policies and exchange controls can be formal andexpressed or de facto. Many countries have laws regarding exchangecontrols that generally limit the amount of money one may moveoutside of that country without a license to do so., Exchange controlsare meant to limit flight capital, which, since it rarely returns to thatcountry, results in permanent economic damage to the economy aswell as a local black market in currencies.Suriss Postfinance SeruicesThe state-owned financial institutions called Swiss Postfinance operatemore than ~,ooo "ordinary post offices" within Switzerland thatalso process financial transactions such as their fund transfer operationsfor private and corporate accounts to Swiss residents as well as ,

OFFSHORE B A H K S RHO R I L R T E U B A H K I H 6 S E R U I C E S 119.isset management, and they are more than happy to do so becauser hcy generate management fees of about 0.5. to 1.5 percent per yearor, the assets under management. Asset management servicesr;lnge from a fully discretionary account to a customer-directed one.Switzerland continues to be the global kingpin of private bankingwith approximately a 40 percent market share.Your Personal Private BankWeekly, I see promotional advertisements in the Wall Street Journaloffering to sell private os Class B banks. The advertisers don't indicatewhat they are selling, but they are the less prestigious Class Bbank licenses. 0s banks are generally licensed as either a Class A (+)or Class B (-) bank. The Class A bank is a retail bank with the abilityto have a storefront operation in the country granting the banklicense (country of formation). It is what you are accustomed to seeingin the U.S. The Class B bank is a private bank not licensed to providebanking services to the residents of the license-granting country.Class A bank licenses are very difficult to obtain, even in the secondtierjurisdictions. First-tier countries are granting Class A licensesonly to existing Class A banks from other jurisdictions that have highcapitalization and long-term successful track records. Class B bankpromoters charge whatever the traffic will bear. I have heard reportsof fees between $40,000 and $~zo,ooo for Class B formation costs.Some promoters are telling their suckers that os banks are not subjectto U.S. taxation-but don't you believe it. Offshore bankinglicenses are being marketed over the Internet without regulatory control.I received the following E-mail offering "World-U.S. FinancialServices" of Ridgewood, New Jersey:I have available for immediate sale four offshore bankinglicenses:I. Bank Licensed in Nauru in 1998-asking $15o,ooo2. Bank Licensed in Kuiu Thlingit Nation in 1998 "A"License-asking $50,0003. Bank Licensed in DOM in 1998 "A" License-asking$10,0004. Bank Licensed in Antigua and Barbuda in 1993 (newownerchin ic a milct-nldnwnerc were nn the wrnnv cidp nf the

O f F S H O R E B R H K S A N D R E L A T I ! B A H K I H C S E R U I C L S 1218. Who can use it?9. Who will manage it?'\lo. Who will be the fund or asset manager?rr. Who should create it?Personal Priuate Bank RequirementsAbuses in personal banking abound. Marginal banking licenses fromcash-strapped minor tax havens are being used to claim exemptionson income tax by U.S. persons. I see frequent advertisements hawk-Ing private banks and their benefits. It is only a matter of time beforethe offshore banking abuses will be under IRS scrutiny. The bankmust be a qualified business unit under a facts and circumstancesanalysis, engaged in the active conduct of the business of banking.To achieve tax deferral, complex structuring is required to avoid theIKC rules with respect to passive foreign investment companies (PFIC)or foreign personal holding companies (FPHC).Some of the factors that are considered to determine a banks'sbona fides include:Provides financial and technical advice to customers.Advises customers on financial needs, includingfunding and financial products.Makes loans, enters into leases, extends credit, orenters into other transactions with customers thatgenerate income that would be considered derived inthe active conduct of banking, financing, or similarbusiness.Solicits customers and vendors. Accepts deposits fromlocal citizenry, bona fide residents, on a regular basis.The level of such deposits must be substantial (not justone or two depositors).Designs and tailors financial products to customers'needs.Negotiates terms with customers.

AnnuitiesTHE ANNUITY APPEARS to be one of the fastest-growing productsoffered by the U.S. insurance industry, and now banks. Banks havediscovered a new profit center in annuity products, and banks nowaccount for approximately 25 percent of the annuity sales in theUnited States. In a deferred annuity, all income taxes are deferreduntil the annuity matures. Capital gains and income accumulate taxdeferred. This results in a stream of payments made to the annuitantduring his or her lifetime under the annuity agreement. Taxes arepaid on the income, interest earned, and the capital gains, but onlyat the tax rates in effect when received. Currently, there is no annuallimit on purchases, but there is no tax credit for purchases. An annuityis not an insurance policy. Annuities are written in various mannersand include the following: contingent annuity, deferred annuity,fixed annuity, refund annuity, and variable annuity. An annuitycertain contract makes payments over a specific period of time thatcontinue upon the death of the annuitant. Annuities are popularbecause of tax deferral; and, because they encourage savings, theyare endorsed by the U.S. government. American insurance compa-

124 THF OFFSHORE H O H E Y B O O Knies finally noticed what the Swiss were doing and wanted a pieceof the action.It is obvious why annuities have become so popular by providingtax deferral on earnings. They can also be used to supplementan IRA or 401(k) without any anrlual limit upon purchase dollaramount. Annuities are intended to provide for long-term tax deferral,although the immediate-pay annuity is also available. The annuityaffords an opportunity to let capital grow and compound withan accumulation of interest and dividends, free of ongoing annualtaxes. There are no taxes until distribution to the annuitant (exceptfor the Swiss annuity, a decided disadvantage). As a caveat, for anannuity purchased for cash, the distributions are taxed at the ordinaryincome tax rates, not at the long-term capital gains rates. Nofederal, state, or local taxes are assessed during the compoundingperiod. It affords an excellent opportunity to provide for your retirementyears, when you'll appreciate the security of receiving regularmonthly or quarterly payments.Much has been written about the various types of annuities, andI will leave that subject to other writers. Study the new, strangevocabulary and the cost factors for the initial purchase and ongoingexpenses. For instance, can you define immediate annuity, deferredannuity, variable annuity, fixed annuity, single premium, lump-sumor periodic fixed premiums, and two-life gift annuity? Your annuityis burdened with annual administrative expenses (and profits).Reasonable annual costs can vary from 1.4 to 2.25 percent. I highlyrecommend some background reading at your library before proceedingwith the remainder of this chapter. For an excellent overviewof os annuities, go to http://www.protectyou.com/apn8-I-fr.htm1.Going Offshore-theSriss AnnuityMany annuities offered to the consumer come directly from and areactively solicited by offshore annuity companies. The Swiss arefamous in this industry. I will use the term "company" hereafter forsimplicity. Curiously, the annuity is not considered by the U.S.Supreme Court to be an insurance policy, but rather a written unse-

cured co[;]in ratel~ave seleAfter yocstate. Tof investo-die an: annuitieIn someor may ndeath-fo1 UpoWhere town funand inteyear eara U.S. fgood taA Srecent tpose. Itof any ecourt-oreven tho. judgmenexemptover $~of sevedeutschperformfree ofstandartalk ofcopy thticipatioextremethe prin

126 T H E O F F S H O R E HOHEY B O O K135 years, no Swiss insurance company has failed to meet its financialobligations or ceased operations. They provide trust, stability,discretion, and reliability.The Priuate AnnuityThe offshore private annuity is a derivation of the onshore scenarioin which an elderly person transfers a highly appreciated businessinterest to a child or younger heir apparent, neither having themoney to purchase the business outright. This results in a stream ofpayments that substitutes for insurance. The value of the privateannuity must be at least the value of the asset transferred.An offshore private annuity is a further refinement. A privateannuity is defined as an unsecured contract between the issuingcompany (the offshore IBC) and the annuitant and is based upon theage and health of the annuitant at the time of contracting (lifeexpectancy), the maturity date, and the stream of payments. Thelife expectancy tables can't be used where the death of the annuitantis certain within twelve months.Under one of the last Internal Revenue Code's more popularloopholes, intended to encourage the future financial security of theRA and reduce the need for government old-age assistance, we finda variation of the traditional annuity. The offshore private annuitycontract is becoming a more popular variation of the basic annuityas an advanced international tax planning and asset protection strategy.The private annuity (PA) is generally issued by or through an osIBC created specifically for that purpose. The PA issued offshore canafford better asset protection to the annuitants in that the principalcannot be reached by an onshore creditor. If the PA is irrevocable andissued from offshore, no creditor or domestic court order can affectits os sanctity. The exception would be for the income streamreceived by the annuitant, which could be attached by creditors, butonly as it is received.Continuing with the scenario, the RA, as the annuitant, purchasesa lump-sum private annuity from the IBC. The annuitant paysmoney or transfers assets (for example, some highly appreciated

Other Structures and StrategiesOffshore Exempt CompaniesIn those jurisdictions that don't approve of the Caribbean-style companyact (most of the European jurisdictions don't) but do want toattract and encourage international company business, we find localvariations of exempt company acts. Some jurisdictions may believethat the IBC is a tainted form of company structure used by some fortax evasion or at least for "sharp practices."Some legal scholars even go so far as to postulate that the IBCmay create a unique, untested legal problem: actual recognition of theIBC in the international courts. The interesting legal issue is that if ajurisdiction has two types of companies-one for locals that requirescomplete disclosure, and a second type of company (the IBC), to beused only by foreigners that requires no disclosure and provides completeprivacy-should the latter be given international recognition?There has not yet been a case addressing this issue.

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OTHER STRUCTURES R H O STRAIECIES 131Oemystifying Residence: Domicile, Citizenship, and PassportsIm'or a number of decades, Europeans have been using the elementsor residence, domicile, citizenship, and passports to implement verysuccessful tax-avoidance and asset protection strategies. In recentyears, a number of reluctant Americans have also been followingthis strategy.People interested in the question of residence have various personalagendas and may be motivated by a combination of any of theFollowing:Fear that holding a specific nationality's passport putsone in high peril from terrorists. For example,Americans are very popular with terrorists who takehostages for ransom.Fears of eventual political instability in the UnitedStates, government overregulation, or policies andtaxes construed as confiscatory; concerns over lack ofpersonal privacy or perceived weaknesses in theAmerican banking system; preparation for an osretirement; a quest for financial security.Concern that certain countries may unexpectedlyconfiscate one's principal passport because it contains avisa or entry stamp from a prohibited country, or aconcern that while one is visiting offshore, civildisobedience or war may prompt confiscation of one'spassport.Need to open an offshore bank account or brokerageaccount more privately.Limitation of some real estate acquisitions, employmentopportunities, or business ventures to only those withpassports.Need to legally preserve or salvage some assets if one isa party to a hostile divorce or partnership dissolution.One can legally open an os bank account using taxneutralmoney with the second passport in a secondname as an a.k.a. (also known as), so long as it is notfor any fraudulent intent.

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O T H E R S T R U C T U R L S A N D S T R A T E C I L S 133I\~~.ther reflection on dual citizenship of Americans and, ultimately,clearly allowing such for Americans.Citizenship(iitizenship is a status granted by a country and may include variousrights, such as.trave1 documents (passports), voting, land ownership,and the ability to hold public office. A country may choose togrant citizenship through various methods, including:Birth in the jurisdictionLineage (through parents or grandparents)MarriageNaturalizationReligious affiliation (for example, the law ofreturn to Israel)Meritorious serviceEconomic benefit to the country\\- 'PassportsPassports are generally thought of as travel documents issued by acountry to its citizens. However, entrepreneurs have created newpassport-like documents that have values ranging from minimal toworthless and even dangerous. This genre includes the followingvariations:CamoutZ;zge Passports The so-called camouflage passport is anonofficial document of a nonexistent country. It can be of extremelyhigh quality and have a genuine appearance. It is generally createdusing the name of a former country-for example, the Republic ofCeylon (now called Sri Lanka) or British Honduras (now calledBelize). It is a novelty item not issued by any government, and is legalto possess in most countries if not utilized for fraudulent purposes.It is never to be used for entry into a country or for any custom purposes.To do so would be fraudulent and generally carries a heavycriminal sentence.

O T H E R S T R U C T U R E S R H O S T R f l T E G I f S 135([he Philippines and Eritrea) are income tax-based on citizenship,which results in being taxed upon worldwide income. Compare thiswith British citizens, who are only taxed based on the tax rate where(hey reside. For example, an American working in the CaymanI\lands-where there is no income tax-would pay income tax to theJnited States, but a British citizen working there would pay no taxes.Millions of Brits, Canadians, Aussies, and other nationals seem toget along quite nicely without U.S. citizenship; Americans who stop,ind think might begin to warm up to the concept.It could make sense for you if it would also result in substantialtax savings. This political agenda of soaking the rich businesspersonwho is "running" offshore and "hiding" with his or her millions hasresulted in many proposed changes to our tax code. If you are entertainingthe thought of renunciation, your personal plan may takeyears to mature fully. For example, obtaining a Canadian citizenshiprequires a three-year residency.The U.S. and Canada no longer let you just move offshore anddisappear with your assets. Recent legislation in the U.S. imposes"reporting requirements" upon you for transfers to an offshore trust.Under current tax law the report is made using Form 3520, which isfiled with your 1040 form the following year on April 15. (See discussionof Forms 3520 and 3520-A in Chapter Ir, page 179 and 180)If you then die offshore, the assets in your offshore trust are part ofyour U.S. estate. These events are called reportable transfers.For guidance, I refer you to an expert citizenship and residenceattorney specializing in this field, David Lesperance (see Appendix C).For U.S. tax advice on the ramifications of renunciation, I refer youto CPA Vernon Jacobs (also Appendix C). For general information onthe different tax havens, see the list of websites in Appendix C. Forinformation on some of the tax ramifications of second citizenshipsand renunciation of U.S. citizenship, see Chapter 11, page 174.Implementing an exit strategy involves careful planning. It maybe necessary to avoid the ten-year attribution rule' on U.S. sourceincome upon expatriation. It is also necessary to avoid unwantedtax liabilities in the jurisdiction of your new citizenship, domicile,and residence. Note that all three elements may be in the same countryor may be in three different countries. By now you should real-

I36THE O f f S H O R f ROHfY B O O Kize that this is clearly a complicated process. Your advisor shouldaddress the following issues:An American may legally acquire a second passport orcitizenship without the risk of automatically losing U.S.citizenship. In fact, the renunciation of one's U.S.citizenship is quite a formal, complex, and lengthyprocess and does not include, as a basis, the mereacquisition of a second passport by a U.S. person.One must also distinguish between the acquisition of apassport and the acquisition of citizenship in a secondcountry. One can obtain an "economic" passport without ,ever becoming a citizen. Many tax havens are seekingcapital for development; as an incentive for economicparticipation, these countries may reward the investorwith a passport but not necessarily citizenship. Typicalprograms require placing funds in a "local" bank for aspecified term, establishing a new business enterprise,and/or purchasing real estate in a government-approveddevelopment. However, the programs are not useful sincethe expatriating American must secure a new citizenship.Real citizenship programs also issue a citizen's traveldocument, a passport.Secure a second passport that is functional. Anexample would be one from the Caribbean nation ofGrenada. This citizenship allows extensive visa-freetraveling including the United States if one is alsoholding a Canadian or Bermuda residence. This maybe particularly beneficial for an expatriating American.But be warned that political instability in a countrycan result in rapid, major changes in passport andcitizenship requirements, possibly nullifying yourstatus.The analytical process described in Chapter 4 applies here, aswell. How do you select the best jurisdiction for you or for you andyour family? Some of the factors to consider in selecting the bestjurisdiction for a second passport or citizenship follow:

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138 THE OFFSHORE MOHEY BOOKbi-econd Citizenshirograms1 jptal SI ip Rcpuisition Psf1:;:&i'Belize offers "economic citizenships." Each year, up to 500 Belize citi-zenship~ may be sold under the Belize Economic Citizenship Programfor a minimum fee of $25,000 (U.S.).The Caribbean jurisdiction of Grenada affords a good example ofthe second citizenship mechanism. Presently, Grenada is characterizedas a socially stable country. Its population is primarily of Africandescen~friendly toward other races, and respectful of the law. Grenada,a British Commonwealth country, needs foreign investment to bolsterits economy, elevate its banking system, and become recognized as aleading tax haven. Grenada rewards participants with a citizenship anda passport: you pay the required government and professional fees of$45,000 (U.S.) to qualify. For an additional fee, your family membersmay be added to the program as well.With your new citizenship, you can reside on an exceptionallybeautiful Caribbean island. When bored, you can use your new .passportand visit over ninety countries without the need for a visa, including theBritish Commonwealth and many European countries.Here is a list of some second passport jurisdictions. But pleasenote the following ratings:1. (+) Useful and functional2. (-) Avoid unless you have family or cultural ties with thesei:k countries.1irI!i- market or fraudulent passports.rF African countries (- -)3. (- -) Avoid because of bogus, illegal passports on the blackBanking passports (-)

140 THE O F F S H O I f ROHfY B O O KThe Family Limited PartnershipThe parties to the family limited partnership (FLP) are the same as ina traditional limited partnership; that is, the general partners (GPS)and the limited partners (LPS). The primary difference is that the LPSare generally family members (usually children) to whom the GPS (USUallyparents) are conveying their interest in an asset to the FLP.Initially, the FLP was thought to have many favorable attributes,including asset protection of real property, a stock portfolio, or thefamily business. However, the fragmenting of the ownership interestamong many LPS resulted in a valuation discounting of the fairmarket value (over a range of 20 to 40 per~ent)~ of the property.One needs an expert appraiser, though, to support the discountedvalue. Costs for a competent appraisal may be in the thousands ofdollars. I have seen legal fees for the FLP run between $5,000 and$~0,000.I often see FLPS being used by practitioners principally becauseof the reluctance of their clients to go directly offshore with theirpersonal property assets. FLP asset protection was thought to beachieved by the following rationale and sequence:I. The claimant would first sue a limited partner and get ajudgment.2. He or she would then seek a charging order from thatcourt against the limited partner's respective interest inthe partnership. Although the judgment creditor wouldprefer to dissolve the LP, he or she is limited to thisremedy.3. Although the judgment creditor could obtain a lien againstthe LP'S interest, it would be relatively useless because LPShave no power to get to the assets of the FLP without theconsent of the GP, they can only reach the distributionsfrom the LP.4. The effect would be to create a taxable event in the eyesof the IRS-this so-called phantom income3 is subject to

O T H f R STRUETURES RHO S l R A I i C I i S 143Each time the partners fail to operate as a true partnership, itweakens the protection claimed by the FLP. Where the LP agreementprovides that, upon a creditor demand being made upon an LP, thep;~rtnership will be dissolved, then the security of the FLP begins to~rnravel.The attack upon the FLP to avoid the charging order problem isI~rought under a,suspicion of fraud, and, further, seeks a dissolutionof the partnership and a disposition of its assets. The legal argutrlentis raised that since the FLP was created primarily for asset protection,as demonstrated by the lack of compliance with theformalities of operating as a true business partnership and the lackof a primary for-profit business, it is a fraud upon the judgmentcreditor of a limited partner. Further support to the creditor's attackon the FLP comes from the type of professionals that formed theI,LP. If they were an "asset protection" company, a judge wouldl~kely side with the judgment creditor. In two cases where partnersrook steps to frustrate a charging order, the courts allowed foreclosureon the real property.A conservative position would be that if all of the potential problemswere sufficiently addressed, the FLP could provide some degreeof asset protection. However, never let the legal problems of onel~m~ted partner destroy the entire FLP structure and cause the loss ofthe property to foreclosure."Rn FTP ChecklistI. The FLP should be a limited partnership. The asset beingtransferred should have a value not less than $I million.Don't mix different types of assets.2. Provide for successor general partners.3. Restrict dissolution of the FLP by using antiliquidationclauses.4. Provide restrictive language in the FLP agreement to theeffect that a creditor who acquires a limited partnershipinterest does not become a partner.

144 THE 0FFS.HORE H O H E Y BOOK5. Provide for assessment powers on all parties holding aninterest in the FLP, whether or not they are partners.6. Consider including optional language allowing buyout byother partners with extended provisions for payments.7. Provide in the agreement for assessment powers over thejudgment creditor for the cost of becoming an owner.8. Have guaranteed payments to partners, which devalue theFLP market value because they are an encumbrance.9. Provide for full indemnification of the general partner for.legal exposure-for example, costs of toxic contaminationremoval, underinsured court judgment, underinsured actsof God, and so on.10. Creating an FLP and transferring assets for assetprotection must be done before a liability arises.For detailed information about FLPS, go to:Real Property Equity Stripping: An Asset Protection ToolThe high-profile person attracts litigation as the candle flame themoth. Jealousy and greed are factors, as well as a surplus of attorneys.Accept it as a fact of life in our highly litigious society. Veryfew contingent-fee attorneys would pursue an expensive case andadvance extraordinary costs for investigators, depositions, andexperts without there being a perceived pot of gold at the end of therainbow. Logically then, they are pursuing the malpractice insurancepolicy limit, a regulatory or licensing agency's recovery fund,or the defendant's deep pockets (your hard-earned assets).Determining whether an individual has deep pockets is relativelyeasy, since tradition, naivete, ego, and the need for a favorable financialstatement keep major assets such as real property highly visible.And an asset search is relatively inexpensive and easy to obtain from

I46 THE O f F S H O R L MOHEY B O O Kpromoters in the classified advertisement pages of the Wall StreetJournal, but now have gone the way of the dodo bird, thankfully. Itremains a farce and is a fraud perpetuated on the public. Figure 10.1remains, however, as a useful teaching tool.Proprietary Triple-Trust StructureFor several years, until he withdrew from the trust business, KarlLoren proposed and marketed a layered structure consisting of threetrusts in series (-) (see Figure 10.2). The first trust was a domestictrust identified as an unincorporated business organization doingbusiness as a trust (uo). The beneficiary of the domestic trust was thefirst os trust (FT I). The beneficiary of FT I was the second os trust,FT 2. Each trust had a trustee and trust protector, and possibly acommittee of advisors.The assets to be protected were transferred to the uo in returnfor a certificate of beneficial interest (CBI) that was alleged to be atax-free exchange of equal value. The asset then was gone, deletedfrom the balance sheet and records of the settlor. The certificate wasof contingent value and thus not very marketable, so it would not bean attractive asset for attachment by a judgment creditor. (However,nothing I could locate in my research supported the propositionof a tax-free transfer for a CBI.)It was asserted that money could flow from the uo to FT I andthen to FT 2 free of U.S. taxes. The tax argument was that since FT2 received no U.S. source of income and was not doing businesseffectively connected with the U.S., then FT 2 had no obligation tofile a U.S. tax return or to pay U.S. taxes. I never was able to acceptthat premise comfortably.Contemporary Three-Tier StructureCapitalizing on a more modern variation of the proprietary tripletruststructure, current tax savings promoters are marketing a variationof the three-box structure (-) and are still claiming total tax

uo = uni6corporatedBusiness OrganizationI: Use of th e UO-Domestic and offshoreOffshore LineNote:CIA = Committee of AdvisorsTee 1 = Trustee (not discretionary)TP = Trust ProtectorTee 2 = Discretionary TrusteeFT = Foreign (offshore) Trust= Alternative--..-4IFlow of $ toBeneficiaryTransferor(tnnrkr~narest, takuback CBl)grandch~ld~n,foundat~on.char~ty. etc )loans. g~fts, grants

148 TH[ OFFSHORE HOHEY BOOKavoidance. A call to me in January 1996 from a Las Vegas chiropractorconfirmed that it was indeed true. The first box of the structurewas changed to an LLC from a domestic uo filing as a trust (seeFigure 10.3). The same tax avoidance claims were now made for thisnewer, modified structure as were previously postulated by Mr.Loren.

O T H F R S T R U C T U R E S A H D S T A R T E G I I S 149See if you follow this logic. Box I, the LLC, distributes incometo Box 2, the first offshore entity, an APT called FT I. The LLC issues;I form K-I to FT I. The sole beneficiary of FT I is FT 2, another osAPT. FT I distributes all of this income to FT 2, os APT to os APT,trom one zero-tax jurisdiction to another zero-tax jurisdiction. Now,it you are still with me, follow further: because FT 2 did not receive:\ny U.S. soucce income or money effectively connected with thellnited States, it did not need to pay U.S. income taxes on the moneyreceived. Is this tax-avoidance scheme U.S. tax compliant, or is it inthe gray area-or even the clearly black area? The consensus of mycolleagues was that it fell into the black area and was not tax compliant.If you are using this structure, you need to see an internationaltax expert immediately and implement remedial action (seeAppendix C).The above strategy is presented for historical purposes and isnot recommended prospectively. Readers should shy away from promoterswho offer such a so-called solution to mitigate U.S. taxessince it does no such thing. Conversely, it would likely cause an IRSaudit. Attorney J. Richard Duke of Birmingham, Alabama, offeredan unequivocal rejection of the structure:This structure will not work, whether funded by the U.S. settloror a foreigner. If the settlor funds the structure, he is the settlor.The foreign corporation that creates the foreign trust istreated as a domestic corporation under the tax laws; and, if aforeigner funds the structure, Form 3520 requires a completeexplanation of how this comes about, the specific code provisionthat states that a U.S. person is not taxed, and other information.One cannot meet these filing requirements and defer or avoid U.S.taxation under this structure.The Pure Trust ScamThe pure trust is a member of that genre of abusive trust arrangementsconsisting of one or more domestic (onshore) trusts ultimatelyflowing into (followed by) an offshore trust or two, perhaps withseveral IBCS, with unwarrented claims of U.S. tax avoidance. Their

I50THE OFFSHORE HOHEY B O O KFigure 11nporary UalIIIIiOffshore Linemethod is the same in that titles of assets are transferred away, outof your name-but you maintain full control. You can't do it-itwon't work!The genre of abusive trust scams carries many labels; look outfor the following terms or variations of these terms that give themaway:

O I H E R S l R V E l U R E S RHO S T R A T E G I E S 151Business organization common-law trustConstitutional trustEquity trustFamily estate trustPure trustUnincorporated business trust organization, sometimesmarketed as an unincorporated business organizationA pure trust is one in which there are at least three parties: thecreator or settlor (never grantor), the trustee, and the beneficiary.l:,nch is a separate entity. A pure trust is claimed to be a lawful, irrevocable,separate legal entity. There must be a minimum of three enti-I les (parties).Its advocates (promoters, in some instances) quote case languagebupporting this definition, such as, "It is established by legal precedenthat pure trusts are lawful, valid business organizations," or " . . . a(rust or trust estate is a legal entity for most purposes, as are commonlawtrusts."Unfortunately, some promoters advocate the use of trusts in a11oi1-tax-compliant manner. Their pure trust package is a scam strucriiredprimarily to evade taxes based on legitimate trust laws. Thepure trust has been tested in the courts in a series of cases called the/arnily trust cases, which hold that the creator of a pure trust is to beresponsible for the taxes that he or she so carefully tried to evade. Notsurprisingly, the promoters of the scam have long since disappeared.Due diligence will prevent your getting drawn into this quagmire.Some promotional literature and advocates state that the procedurefor establishing a pure trust is under "contract" law-a commonlawcontract rather than a statutory law contract. As a consequence,one isolates oneself from being a taxable entity, protecting againstexposure to liabilities and government intervention.A trust is sometimes called a pure contractual trust. It is createdby an instrument (document) called a declaration of trust, which iswritten under common law with no reference to the jurisdiction ofa state or federal statutory law. The pure trust is set up by the settlorand the first trustee for the benefit of the beneficiary. Be awarethat if you retain ownership or are still in control of any trust assets,

152 I H f OFFSHORE ROHFY BOOK1icreditors could pierce the protective veil supposedly provided by thepure trust vehicle.Assets are usually transferred to the pure trust by way of donationsor gifting to the trust-for example, from a third party (seeChapter 11, discussion of Form 709, page 178). Promoters claimthat if the pure trust has a situs in a state that recognizes its legality(for example, Florida), the trust can function under the controlof "U.S. common law," which will recognize and acknowledge thestate's laws and statutes. They further claim that if you wish to establisha situs in any other state, province, or country, that you simplychange the situs or jurisdiction address by passing appropriate "trustminutes," as would be the case under typical contract law.There are further refinements to the pure trust. It may be structuredas a business trust so it can operate an existing business forprofit, or as a management trust. Being an entity-a person underthe IRC-the trust must obtain a tax ID to function. It is permittedto.operate an existing business that has been transferred to the trust,but only for the purpose of sale or liquidation and subsequent distributionof the assets to the beneficiaries at a later date as definedin the trust or under the discretion of the trustee.Promoters also market the pure trust as an asset protectiondevice. They claim that using such a trust isolates your personalassets from the separate conduct of the pure trust. They allege thattrust assets belong to the trust, not you. If there is a judgmententered against you, your creditor cannot seize what is owned bythe pure trust, a separate person. If you had previously transferredtitle to your assets to the trust, without knowledge of any claimagainst you, then the assets are protected from your creditors. Conversely,as a person, the trust can be sued or can sue others.It is further claimed that the creator's filing bankruptcy will notaffect the trust, nor will a subsequent divorce. Others have used thepure trust as an alternative to a prenuptial agreement.At this point, you may be shouting, "If a pure trust is so wonderful,why doesn't everyone use it?" The trust promoters are prettyslick in this regard. The following examples are typical of theirapproach; see if you can pick up on the psychology being employedto capture you. These examples are provided without endorsement

154 THE 0FFSHORE.HOHEY BOOKtime of your death, and would like to be afterwards, the presentbeneficiaries need to relinquish their position and have.it cleared bythe trustees. If your heirs simply want to control the assets like youdid before your death, you need to make sure their names are establishedas "Successor Trustees" in appropriate minutes. That way, inthe event of your death, they automatically take over your positionas First Trustee.The promoters further claim that "everything you need toknow" is in their "simple pure trust kit." Just follow the format ofthe promotional materials and sample formats that are included andyou'll do just fine. And finally, they state:FINAL NOTE: The procedure of operating a TRUST is alwaysan ongoing learning situation. You will always be learning newways in which to maneuver yourself or your assets to be mostfavorable for your tax situation or financial well-being. Althoughwe can't be your legal or tax advisor, we will tell you everythingwe know about the position of running a TRUST. If you ever needto talk to us or have any questions, we will be glad to talk. Dropus a line or pick up the phone and call. We'll do everything we canto help you.The Business TrustThe business trust (BT) (---) remains with us to this date. The IRSrecognizes four general classifications of trusts: the ordinary trust,the investment trust, the liquidating trust, and the business trust.You probably are most familiar with the ordinary trust, usually createdby a will or an inter vivos declaration. This trust is intended forthe orderly management and distribution of assets upon death orproviding for holding property of minors.The business trust is either an evolution of the "Massachusettsbusiness trust" or an entity unto itself. Its advocates claim that it isan excellent asset protection tool. Some even claim it results in taxreduction. Well, that depends.Some structures include two trusts in series: an operating trustheld by its beneficiary, the holding trust. Initially, the business orreal property is transferred to the operating trust. While the origi-

O T H E l STRUCTURES RHO STRRTEEIES 155nal owner remains on as an asset manager, he or she is receivingForm 1099 income for his or her services. The trust is "insured" inits own name and defends any lawsuits against it and the asset manager.But the original owner of the asset claims no interest in it anylonger, and therefore he or she shouldn't be a defendant in any lawsuitagainst the business trust.The business trust is not a traditional entity, so few CPAS or businessattorneys will recognize or encourage utilizing it. To find outmore about it, you need to get with the cult that perpetuates it. Thepromoters are under heavy fire from the IRS because of their claimsof tax avoidance. The BT and its progeny have been characterized bythe IRS as being abusive trusts. It is promoted with promises of taxbenefits without the taxpayer giving up control of the assets andcontinuing to derive benefits, as before the BT was put in place. Theabusive BTS fall into five areas:I. The basic business trust. The owner of a soleproprietorship transfers ownership of his or her businessenterprise to a newly formed BT. Some promoters refer tothis entity as an unincorporated business organization(UBO). In some situations, the transferor takes back, on atax-free exchange basis, a certificate of ownership. Thesecertificates have the appearance of a traditional stockcertificate and are referred to as certificates of beneficialinterest (CBIS) or units of beneficial interest (UBIS). Byimaginative expense payments to the transferor and toother trusts that he or she has created, the BT has no orlittle taxable income. Promotional claims are also madethat this eliminates the need to pay self-employment taxes.Further claims are made that since the CBIS or UBIS can becanceled upon death of the original business owner ortransferred to the children for a token payment, you haveavoided estate death tax liability.2. The family residence trust. The transferor transfers title tothe residence to the trust, as well as all the furnishings.The trust becomes the landlord. Promoters claim that thenew trust has a stepped-up basis and when it sells the real

property, it can avthe normal indiciamissing in that renpays real propertyinsurance directly3. The service or eqtransferred to theexorbitant rentalCBI is given withOther trust servicreduce the income4. The charitable trucreated trust. TheIRC rules, but thatclaim that the dontrust. The trust tacauses as providinchildren and grand5. The final trust. Tholding entity. It ifor further asset pThis trust may hoFurther claims arethe income to a sehas no U.S. liabilinot receiving U.S.assumption in thanot eliminated byoffshore trusts.The156 THE OFFSHORE MOHThe pure equity trust (- -designed trust claiming atble advantages" for asset

OTHER STRUCTURES A N D S T R R T E E I E S 157management, and flexibility. The creator exchanges assets with thetrust, and in return receives a certificate of beneficial interest (CBI)in units of beneficial interest (UBI) in the trust. Generally, one unitequals I percent. The beneficiaries hold (own) the CBIS. This promotionis quite similar to the business trust.The creator is not a beneficiary, but is usually retained by thetrustees to "manage" the assets. The trustees are of two typesindependentand adverse. Independent is defined as not being relatedby blood, marriage, adoption, or an employer-employee relationshipwith the creator. The adverse trustee is defined as one who has a substantialbeneficial interest in the trust assets as well as the income orbenefits derived from the trust.Prouiding for a Child in a High-Risk ProfessionHigh net worth parents wanting to give to an adult child working inan industry fraught with the risks of litigation have to be concernedthat what they give could be lost to a successful litigant. To satisfythis concern, parents could give to an irrevocable domestic trust, afamily limited partnership, or an offshore trust for the benefit of thatchild and the children of that child (their grandchildren) in a form ofan educational trust or a fully discretionary trust, containing spendthriftclauses that would provide for the child's well-being (+++).Such a trust could not be invaded by the child's creditors. In this formof trust, the child is only a discretionary beneficiary and never can beconstrued as a settlor. Other forms of trust that might also be consideredare special needs trusts or purpose trusts.Offshore Charitable or Priuate FoundationsThe offshore charitable foundation (+ or -, depending upon the jurisdictionand tax reforms) is no longer just for the very wealthy families.The Ford Foundation and the Rockefeller Foundation areclearly the pioneers, but now many foundations may be formed byless wealthy Americans to implement their altruistic and charitablephilosophies. 0s charitable foundations are less costly to form and

I58 T H E O F f S H O R F HOHEY B O O KIntuition tells you it is an abusive trust.Promoters suggest that the trust is guaranteed totaxes.Promoters claim that the trust will permit tax-freefor school scholarships, medical expenses, special lYou become a "caretaker" (maintain full control) oresidence.You receive a pre-filing notice from the IRS. By then,late for remedial action.administer than their American counterparts. Furof overly restrictive U.S. laws that limit, overconSome of the advantages of a private foundation aIt is a legal entity.It is relatively easy to form.It is less costly to create than an APT.It is easier to replace a board member of tfoundation than to replace a trustee of anThe Liechtenstein form of private foundationalso be found in other countries such as the Neand Panama. The uses are quite varied and includReligious, charitable, public, or family objAsset protectionPreservation of family wealthInternational estate planningIsolation of specific assets from the balancIt is not intended to be profit oriented, so itengage in commercial activities on a regular basis

O T H E R S T R U C T U R f S A H 0 S T R R T E G I E S 159commercial transactions to the extent necessary to accomplish itscharter. For example, if the foundation holds stock in a company, itmay exercise its rights as a shareholder of a corporation.However, one negative aspect is a loss of U.S. tax deductibilityfor U.S. source gifts or donations to a foreign charity or foundation.Private-interest foundations are used as asset protection vehiclesfor high net worth persons. Panama has developed the use of thefoundation as an asset protection tool.There are two types of foundations: an inter wiwos foundation,which may be established during the founder's lifetime, and a postmortemfoundation, which is established after his or her death. Theprivate-interest foundation, once registered in the public registry, isconsidered an independent, legal person, apart and separate fromthe founder.The founder or third persons may transfer assets to the foundation.The foundation may be used to hold any type of asset, presentor future, and may derive its income from any type of legal business,which should be held in an underlying corporation. The assets ofthe foundation will constitute a separate estate from those of thefounder and beneficiaries. They may not be seized, liened, or subjectedto any lawsuit in connection with activity of the founder orbeneficiary. Under no circumstances shall the assets of the foundationbe used to satisfy personal obligations of the founder or of thebeneficiaries.Often, the founder retains control over the foundation throughmaintaining the power of appointment of the foundation council.The founder may serve as a member of the foundation council as abeneficiary or as protector. The founder retains the power to removeall of these powers if so desired or may reassign them to another personin the foundation. The founder can be a natural or legal person.Furthermore, a nominee could be used as the founder, whereforethe individual's name does not need to appear in the memorandumof constitution.The foundation council is similar to the board of directors of acorporation. It makes all the decisions for the benefit of the foundation.The council has the obligation to administer the foundation ,assets for the benefit of the beneficiaries. In case of mismanagement

160 THE OFFSHORE I O H E Y BOOK,, 1 '1;.I II,of the assets of the foundation by the foundation council, the beneficiariescan object to the actions of the council.The beneficiaries are the persons for whose benefit the foundationis established (often the family members of the founder). Theycan be natural andlor legal persons. The objectives of the foundationoften address the education and health needs of the beneficiariesor grantees, such as the extended family of the founder. Thebeneficiaries of the foundation need not appear in the memorandumof constitution of the foundation. Only the persons involved in thecreation of the foundation know the identities of the beneficiaries,as established in the bylaws. The bylaws are private and are not registeredin the public registry. A court order is the only way for athird party to identify the beneficiaries of a foundation.An additional protection provided by 199s legislation is that allpersons involved in any activities, transactions, or operations relatedto the foundation are required to maintain full secrecy and confidentialityat all times. The punishment for breach of this duty is sixmonths of imprisonment and a $50,000 fine, with the potential forfurther civil liability. This applies to persons involved in any transaction(such as constitution, amendments, and bylaws) of the foundation,irrespective of whether they work in the private or publicsector.With the proper personal planning, a private foundation can beused as an integral part of estate planning. It is useful to keep inmind that foundations have been established with the intent toattract capital from foreign investors, and in exchange the investorwill receive secrecy on the operations made, asset protection, and taxexemptions.Bankruptcy with an Asset Preservation PlanYou should try to avoid personal bankruptcy. Federal bankruptcyjudges have tremendous powers and are not reluctant to use them.If, regrettably, as the last recourse, one must file a bankruptcy, oneshould consider the following:

O T H E RSTRUClUREMake a complete disclosure of youand interests on the schedules thatpetition, as filed with the bankruptcase in Virginia, the court denied adischarge because the petitioner faBermuda APT. The court found thahe had a reversionary interest in thconceal that interest with the intenand delay his creditors." On the mcreditor could not get assets fromand ultimately settled with the trusprivate settlement at a substantialAssume that disgruntled former emformer spouse, dissatisfied partneror others in your personal andloradversarial toward you because ofsustained in the filing of your banklikely to inform the trustee.If the bankruptcy trustee for yourupon the court, omissions in the sccourt, or evidence that you're conche or she is compelled to pursue yassets, wherever situated. A U.S. bbeen known to go to the Isle of Mconcealed assets, and as he was abfraud, the Isle of Man courts tookfunds hidden there. Many offshoreentering into treaties which requiretransnational bankruptcy proceedinThe trustee specializes in locatingconcealed assets and does so on ana full-time occupation, and he or sand experience to locate them. Thbased on the recovery of assets. Thmotivating factor. The trustee's attform of contingent fee-if they rec

are pratefees.A faibasisdischagainIf yocharayourreferinvesYouThetransThWdacaWonThlawDon'tassetsbeforattornto hotransmlegalUnitepreferknowexamallow162 THt

O T H E R S T R U C T U I F S AH0 S T R R T F G I I S 163The U.S. bankruptcy code has not abrogated theStatute of Elizabeth with respect to future known andunknown claimants (creditors).foreiyn Income ExclusionThose who live outside the United States for 330 days per year mayhave an IRS income tax opportunity. There is an annual exemptionof foreign earned income that is scheduled according to the followingscale:Calendar yearAmount allowedas exempt19992000200 120022003Under present law, the same as for 2002and for the later yearsSee IRS Form 2555 for further details. To obtain this exemption,the taxpayer must be a bona fide resident of a foreign country ormeet the alternative physical presence test on a calendar year basis.Physical presence is defined as being outside of the U.S. for 330 fulldays in the calendar year. Also, the compensation must be for personalservices, not investment income. The terms bona fide and presencetest are clarified in the IRC at $911. There also are specialprovisions for the situation of a husband and wife both working offshore.This is a more complicated section than it appears to be atfirst blush. Get competent tax advice to do it correctly, and save alot of income taxes and avoid hassles with the IRS.So there must be foreign earned income for services rendered ina foreign country, and you must pass the bona fide residence test orthe physical presence test. Meeting the foreign residency requirementsis the major problem. The two tests are:

I. Bona fide residence test. To satisfy this test, the taxpayermust demonstrate that he or she has been.a bona fideresident of a foreign country or combination of foreigncountries for an uninterrupted period that includes anentire taxable year.2. Presence test. The taxpayer must meet the burden ofproving that during any period of twelve consecutivemonths, he or she was "present" in a foreign country orcountries during at least 330 full days.Determining Where Your Tax Abode Is LocatedThe courts and the IRS use some of the following parameters as a testto determine whether you are an offshore resident:I. The physical location of your permanent home, regardlessof whether it is now rental property2. If you are married, the location of your family whileworking offshore3. An analysis of the total time spent in the U.S. ascompared to offshore, especially during your vacation ortime-off periods4. The locations of your reported bank accounts5. The jurisdiction of the driver's license you are using6. The jurisdiction where your vehicles are registered7. The location where you are legally entitled and registeredto vote .8. The place where you receive your personal mail in thenormal course of everyday events9. The location of your primary social, cultural, and politicalrelationships and religious affiliations outside of the U.S.

Viatica1 settlements are npurchasing the death benare terminally ill. The muill people before death stheir last moments on Eaof the insurance companyafter you have paid the ilPublication 525, "Taxablemation. It states: "Life indeath of the insured perturned over to you for aForei10. The locations ofyou have an inter11. Whether incomecountry12. Whether you spewhich you are wo13. The location of thusing14. Whether you areIS. Whether you areother necessitiesUiatThe IRC has provided tasales that qualify as foreplex topic requiring the s3,600 ~ scs have been for

166 IHEU.S. compprovidingtest and pqualify asdos haveattack-thelates someWe are sewhich is icasinos wigrowth ingamblingAmericanif a U.K. bfree bets fcasinos isPre-licAngratrueTheproA bopeappBendirerefethrothatpassYou

O T H E R S T R U C T U R E S AND S T R A I E C I I S 167You must provide appropriate safeguards to preventlocal citizens from placing bets.Banking transactions must clear through a local bank.Upon approval and the granting of the license:Work permits are required for all non-nationals.Payment of the registration fee, between $80,000 and$~oo,ooo in the jurisdictions that I have investigated.Expect an annual renewal fee in the order of $40,000.Report any changes in the directors or beneficialowners within a specified reporting period.Any advertising must be first cleared by the localgovernment.EndnotesI If your principal purpose of renouncing your citizenship is for taxpurposes, you will still owe them for a period of up to ten years, as far asthe IRS is concerned.z The greater the discount taken, the more IRS "chokes" on it. Whilea 20 percent discount is generally IRS acceptable, 30 percent pushes the IRSenvelope of tolerance, 40 percent will most assuredly involve a dispute.3 While this book was being drafted, federal legislation was pendingthat gave judgment creditors relief from the phenomena of phantom incometax recapture. Consult with your tax advisor for the current status andproper treatment of this tax relief measure.4 The Georgia Uniform Partnership Act (UPA) does not provide forforeclosures of limited partnership interests. Many planners thus makeGeorgia the state of choice for FLPS.5 The valuation discount is based on two factors: I. a lack of transferabilitydue to those restrictions contained in the FLP agreement; and 2.the creation of minority ownership (even where the LPS own 98 percent) ofthe FLP. Minority ownership means a lack of control.

Tax Treatment, Ramifications, and DeferralNo man in this country is tinder the smallest obligation,moral or otherwise, to arrange his legal relation to his businessor to his property as to enable the Inland Revenue toput the largest possible shovel into his stores.You can have a lord, you call have a kilzg,but the man to fear is the tax collector.FOUNII IN rHE TIGRIS ANDEUPHRATE~ VALLEY,CIRCA 4000 B.C.. . . in the last twelve years, there have been about9,500 tax code chalzges.THE PROBLEM WITH writing about taxes is that the information heremay quickly become outdated' by new legislation. Further, the quantityof incorrect information and the promulgation of misinformationby tax-scheme hucksters are staggering. Your offshore plannerneeds to update you and do remedial work before you can proceed.

170 I H E OFFSHOR,E IIOHEY BOOKIf you don't use offshore planners who understand the relevant U.S.tax laws, you will very likely be in noncompliance with those taxlaws.I use the word foreign in this chapter to be consistent with theIRC. The U.S. Congress has become notorious for changing the taxcode without "grandfathering" existing structures, making os taxplanning extremely difficult. Accordingly, the appropriate disclaimerwould be that you should treat this section as reference and historicmaterial for academic discussions. Review any of the materials, especiallythe tax materials in this book, with your informed consultantbefore proceeding.Your possible participation in foreign accounts and foreign trustsis required to be disclosed to the IRS on Schedule B of the 1040 taxform.Offshore jurisdictions, with their low tax rates, tax exemptions,and, in some cases, lack of taxes, occupy a vital and growing role ininternational tax deferral or possible avoidance. The tax regimen ofthe jurisdiction being considered is a most important consideration.For privacy, it should be axiomatic that offshore funds remainoffshore, out of the U.S. banking system, which lacks privacy.As a general proposition, no U.S. tax savings should be anticipatedunless one uses tax-deferral devices such as offshore annuitiesor insurance products or invests in specific stocks for future capitalgains rather than current dividends2 or income.The United States is unusual with respect to other major industrializednations in that it taxes its citizens and foreign residents on thebasis of their worldwide income; only citizens from the Philippines,Romania, and Eritrea suffer from this same problem. If a U.K. citizenworks in the Cayman Islands, he or she pays no income tax, since theCaymans have none and the United Kingdom doesn't tax offshoreincome. But a U.S. person working in the Caymans would, after an initialoffshore exemption, pay taxes to the United States. The price forthe privilege of U.S. citizenship is high-maybe even inequitable!Paradoxically, the United States is a safe tax haven for around 90percent of the world's population and foreign central banks. Toencourage foreign investment in the U.S. stock market, the offshoreinvestor pays no capital gains on U.S. security transactions. To

TThe IRS presumeneutral flow-throto U.S. persons.used to not trigrules limiting owThe primarytrol of the sharesor residents). Th2. Where fivpercent oOwnership bdefined term) isship rules can'tfamily, in familyporation. All ofparties are aggrbeen met. The atcussion is beyondit is not possiblea relative, trust,trolled by a U.S.If the foreignholders (those wtion) must reporof certain incomepart F" income bTRXencourage depostaxes on interestI. Ownershor the vaU.S. pers

income of the corporation anderived from transactions witFurther complications arito be a foreign personal holdoccur if at least 60 percent ofpassive investment sources anporation is owned (directly orholders. Basically, the incomeby the shareholders of the comIf the os company is charinvestors are taxed each tax ypart F income, which consiststain other types of income evbe no tax deferral. Further, a Uissue if the income received iforeign investment company172 T H E O F F S H O R E H O N L Y BTax on tThe IRS will tax the grantorincome. The tax is determineis a U.S. person and whetherCurrently, there is a diffwhether a foreign trust shoudomestic trust, thereby avoidTo qualify, the trust must be sU.S. court, and one or more oU.S. persons, and those persoall substantial decisions of theTo meet this test, plannerseign trustee and two U.S. trustarises, the U.S. trustees resignchanges the situs of the trust tis controversial since there maand execute this plan. The IRfail the test to qualify as being

I R X TREATMENT, RRMIFICATIONS. A H D D E F E R R A L 173But there is also a tax issue involved. If there are any appreciatedassets in the domestic trust, when the trust becomes a foreigntrust it will be subject to a capital gains tax at the time the trust isconverted.Special Tax Concessions by Local JurisdictionsSome offshore jurisdictions provide special tax laws that make themideal for special applications. Some that have been identified includeAndorra and Cyprus for the EU community, BVI in the Caribbean,Macau on the South China coast, and Nauru in the Pacific. Adetailed discussion of each jurisdiction is beyond the scope of thisbook; however, your offshore consultant should steer you to the sitethat would best meet your needs.Excise TaxThe Taxpayers Relief Act of 1997 repealed the excise tax previouslyimposed upon transfer to foreign entities on or after August 5,1997.Alternatively, the IRS was empowered to draft regulations toimplement capital gains treatment on such transfers in lieu of theexcise tax. Generally, any transfer of appreciated property to a foreigntrust for less than adequate consideration is now taxable as asale or exchange, except as provided by regulations. And when adomestic trust becomes a foreign trust, any unrealized gain in theassets held by the trust is deemed to have been realized and the capitalgains tax will apply. However, the capital gain does not apply ifthe foreign trust is a grantor trust under grantor trust rules.Taxes on Annuity ProceedsAs a general rule, offshore annuities are taxed in the same manneras onshore annuities. However, it now appears that a fixed-return,deferred annuity issued by a foreign insurance company will be sub-

174 T H E O F F S H O R E M O N E Y B O O Kjected to tax on the accumulationsis because of IRS regulation TD 8754addresses the tax treatment of "origiIt was the IRS'S apparent intent to fpopularity of the "retirement CDS" tas annuity contracts. To put a stop tooriginal issue discount sections offixed-rate, deferred payment annuitinsurance company subject to sub-cqualify as an annuity.The apparent outcome is that foance contracts still appear to be taxtaxed the same as annuity contracts.or fixed contracts that begin paymeas annuity contracts, even though thance companies.U.S. Taxes on the IBC lnuestinAs an incentive for offshore companieconomy, offshore investors in the U.free bonds are not required to pay aits made in the stock market. They doon dividends. The 30 percent withhoat the source-the payor or the stodistributed offshore.Tax on Renouncing UA U.S. person has a constitutional ricitizenship; the problem is that the rterminate future tax obligations to tThe determination of whether thson was clearly intended to avoid taxciate the current law, it is necessa

T A X TREATREHT, A A H I F I C R T I O H S , AND O ~ F E R R A L 175renunciation. In 1996, it was passed into law as an amendment to theHealth Insurance Portability and Accountability Act. Before thattime, the IRC imposed income taxes on the U.S. source income of formercitizens and residents for up to ten years, providing the IRS coulddemonstrate that the motivation for expatriation was the avoidanceof U.S. income taxes.The IRS was often frustrated with having to prove intent in taxcourt, and many taxpayers were able to convince the court that theyhad other reasons for their expatriation. The IRS finally prevailedupon a Congress that thought it would be the popular thing to dogetthose rich people who were moving offshore with their moneytoamend the tax laws. They eliminated the intent requirement. Thetest was simply that anyone who has a net worth of at least $~OO,OOOor an average tax liability of more than $~oo,ooo per year for thepast five years will be presumed to have expatriated for a tax-avoidancepurpose. The IRS is therefore not required to prove intent, andthe ten-year rule applies.Adding insult to injury, as a rider to a separate 1996 immigrationbill, there was added a provision that prohibited the return offormer U.S. citizens or longtime residents who had expatriated, ifthey were found to be subject to the presumption of tax avoidanceas their motive for expatriation.In a third 1996 act, some further changes had the effect of closinga perceived loophole with respect to certain kinds of tax-deferred, exchanges and to impose tax on the expatriate for any income orgains realized by a CFC from property contributed to the CFC inwhich the expatriate was a shareholder. (CFCS are quite complexyoushould discuss them with your CPA.)Presently, there is a debate about whether the law prohibiting reentryof the person renouncing U.S. citizenship is constitutionalbutthere have been no legal challenges to date. Rumor has it thatthe U.S. government has not been enforcing the rule to avoid triggeringa court challenge.As a practical matter, if a U.S. person sells all appreciated assets,pays capital gains taxes, and cashes in all tax-deferred incomestreams (such as a pension), he or she should be able to leave the U.S.without any future tax obligation to the U.S. other than what any

176 T H E O F I S H O A E M O H E Y B O O Knonresident alien might incur. Whether that would alter the rule thatprohibits the return of such a person to the U.S.. is unclear at thistime. Estate and gift taxes can be avoided by removing the propertyfrom the U.S. and not owning any U.S. securities.IRS Requirements for an Offshore Principal OfficeBusiness income derived from a foreign corporation that is not effectivelyconnected with a U.S. trade or business conducted by the foreigncorporation is not generally subject to current U.S. incometaxes, even if the corporation is owned or controlled by U.S. persons.With careful management, it would also be possible to havedeferred profits from the sale of products in the U.S. by a foreigncorporation so long as the corporation does not meet the detailedtest for having any "U.S. source income." To the extent that the foreigncorporation does have any U.S. source income, it must file atax return and pay taxes on that income to the U.S. government.Profits from non-U.S. income could be tax deferred to the U.S. ownersof the foreign corporation.In order to defer profits from a foreign corporation, the generalrule is that the foreign corporation should not have a business presencein the United States. This would include all or most of the followingcriteria.I. Financial reports were provided 0s.2. Communications with the shareholders or members wasdone 0s.3. Marketing and solicitation for sales of the IBC'S stock was 0s.4. New shareholders' or members' subscription for stock was 0s.5. General public communication was 0s.6. The principal corporate books and records weremaintained 0s.7. Payments and cash disbursements were made from 0s.

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T A X TRtflTMLHT, R R H I F I C A T I O H S . RHO D t I I R R R L 179Part I11 has slowly evolved to include increasingly comprehensivequestioning as to offshore financial transactions. Questions probeyour degree of control or ownership in foreign accounts. Check theYes box if the answer to any of the following is appropriate:At any time during the tax year (even if for a fleetingsecond of time),You had an "interest" (whatever that means),Or, in the disjunctive, you had signatory authority,Or you had "authority" (again, whatever that means),Over a "financial" account in a foreign country.Account is defined to include bank account, securityaccount, or other accounts (whatever thatencompasses).Where, in what foreign country? You must list them all.If you had during the prior year a combined foreign account valuethat never exceeded $~o,oo offshore, you may check the No box.Question 12 regards your involvement in foreign trusts:If a foreign trust existed at any time during the priortax year (even for a fleeting moment),Were you the grantor of that trust, or,Did you transfer any assets to any foreign trust,Whether or not you personally were the beneficiary ofthat trust or had any beneficial interest in that trust?In addition, the grantor of a grantor trust must report the interestand dividends received by checking the Yes box at the bottom ofSchedule B.7. IRS Form 1041, "U.S. Income Tax Return for Estates andTrusts," is filed by the grantor of a grantor trust.s8. IRS Form 3520, advising the IRS of the "Creation of or Transfersto Certain Foreign Trusts," is now required to be filed with thetax return (including extension of time to file) of the trust grantorwho forms a foreign trust, makes contributions to a foreign grantortrust, or receives certain distributions from a foreign trust. U.S. beneficiariesof a foreign trust may be required to report the receipt of

180 T H E O F F S H O R ! HONIY B O O Kcertain distributions or loans from the trust. A separate copy of theform must be sent (at the same time) to the Philadelphia office ofthe IRS.9. IRS Form 3520-A, "Annual Information Return of ForeignTrust with a U.S. Owner," must be filed each year by the grantorof a foreign trust that has one or more U.S. beneficiaries during theyear. A copy must be filed with the IRS in the Philadelphia office.10. Customs Form 4790 is for advising with a "Report of InternationalTransportation of Currency or Monetary Instruments" ofthe importing or exporting of $~o,oo or more of currency or othermonetary instruments. Filing is done by the shippers or mailers andby the recipients.The recipient files the form within thirty days after receipt, notwith the IRS but with the U.S. Customs Officer in charge at any portof entry or departure. It may also be made to the Commissioner ofCustoms, Attention: Currency Transportation Reports, Washington,DC 20229.Shippers or mailers may file by mail if the currency or monetaryinstruments did not accompany a person while departing or enteringthe U.S.Travelers carrying money or instruments must file Form 4790with the Custom Officer in charge at any customs port whendeparting or entering the U.S. Curiously, tourists leaving theBahamas for the U.S. are cleared by U.S. customs in the Bahamas.At that time, they are asked if they are carrying more than $~o,oooin currency (note that I didn't specify U.S. currency here) or monetaryinstruments.11. IRS Form 5471, an annual "Informational Return of U.S. Personswith Respect to Certain Foreign Corporations," is filed by "certain"U.S. citizens or residents who are officers, directors, orshareholders in certain foreign corporations. Generally, shareholdersof a CFC or FPHC are only required to file if they have a 10 percentor greater ownership interest or when they have acquired ordisposed of a 5 percent or greater interest in the foreign corporation.Officers or directors of a foreign corporation are generally

T R X T R E A T I E H T . A A I I F I C A T I O H S , A N DFigure 1Annual Return To Report Transactions WithForeign Trusts and Receipt of Certain Foreign Gif'"" 3520Lkw-kwW~~ FI*, ~nstr~cuons are warate.-meek G & applppllle u s111 infamatkon in ~ ~ ~ lshow i ~ h amwntr . in u.S. dollats. File a separate Form 3520FU ~krnr F ,998, a wr pa wdw ur.ls sa --nocmr a ia lato mrlml see Insuucuom. O 0 frnsr rcrurn~m*l raunfiIw ,etwU mdulailyl D ~anw-p_-u Cawam n-cmk a11 8PPliclblO bole,.R (a) var arc a u s wanslna w. dw a m6ENlly. Uarm~neO rnw a mlR Pwrly dultn~UF curml(b) YOU hela an ouwandmg ohsig,,tiona r3~ted foreign trust (m a prison r*!atm to IIW iw~) ltrtxr! durln9tesnd cd aa .qua*cd ot,~qt-on- Maned on PJ~E 2 o( the imy~tan;~ *unng rllp curan mr ymr Id!,: lhvZ YW ere a u S. -r 01 an or any pmlon d a faow wvrt st any t,me dm9 QO 8, war Sce the msww$3 Id YOU ore a us. won ,no. dlnng tile CU~M far year. reeclvpd a r(lm~w-7 Iran o fango rrusl, u (b)oDfignm i-d 4 ((rr a p ~ relam n to wl aulng the current mi yea mm YO, trcaceu(aphnca M pap 2 d U* ,nrmcuom] drrtng Vlc cvrem ur year. Sr? tlw 8n~uNuana lor Port 111You ae n u.S wm rrhp Wnhl the arrprr tax w. re- cow" gnr a bwests lran o forogn *sonPin IV.e Sme (X pawnce3 ad a la+ ",st appoult a u s. age4 (deOned m page 3 01 VP ~~~~tttc~)ml who ccc pone IM IR5 w... -.n*-n mt in(malan?. . . . . . . . . . . . . . . . . . . . . . . - .11 -yps: ctmplele lhnes 3s amugh jg3r Nmea(US.BgenWllliam 8. Granla clv m townGranolar. Name d Us. medM [see WJb WmcaIiM nvmm Gl any)123-45-6788e %cca povi-Celilornlab AUdmsI 1IPm povllom91234c ~u123g CoyU.Sc TINa om d deanECINTransfers by U.S. Persons to s Foreign Trust During the Current Tax Year (S5a Name ol lru~ mom G I r n l b Wasc lowborn me 181II6. COY~~O~ CDdO d cwmq w e VUY was CIB~IB~ D cmty ccd. d vnn~y KWS Ylv ga~eim Fa YVJ~ 5 DaBDED2117. WII any ahu perm m ucarcd as me anrer d the ranslened osreu dm the uamfer7 . , ,NIMdoWfanlnI- -. l z-7*ICI

I82 THE OFFSHORF M O H E Y BOOKFiqu S Form 3521F ~ . , 3520-A Annual .Information Return of OUR M, lsII OIUl.Is .amem",General Information (See instrucltons )la Namo of faetgn vurt b Idenurcamnnmw B liPrvde~ce TNSI123-45-6789 i:c Nun'M, nrccl. aM loom rn 5ulle no BI a P.0 ba*. uc ,n~uclim5)-UO William 6. Grant123 Main Streetd Clly a lnrmGranolaCslllornia2 Old m l ~~ign rn sppo;m n US agem Le6ned m page 2 or the mrimtions) mo cm prwide IRS nlh a81rrwat sun lmam*tion7 B ves 0 NOIf 'Yes.- rlrp h s 2" Lnmvgh. 2s nnd. . go .to. . . . . . . . . . . . . . . . . . . . .slir 3.If -".' yw are rWm w anrh .I ar;;y. 1 au wa d a m as mcalw Wou. I lhw: dllcmr luve m n amacrrd !m a F-3670-A rrd *nm th. wcauus 3 yo-. 3tucn only relean,AlWckd Vear~4uu P aturhcd 8 copy orY.r NO PreYauy AmcMda Smmny dau &en amaaleg.emonts a~ vMnYandngs to UR -7. ..D -b Thu-tnsw~m?. 0 0. . . . . . . . . . . . . . . . .C MC-ndll a lenpcj or m5heS?, .0 -10 . :"i~suD~~-~~~~Es~o~~~MIo~Y&Uo o -ou.3 mm da-? .......... .......... n n36 Name of U.S. agente Sule a -we1 ZIP a mIM code g corn-Wllllam EL Gmnl123*m9c NumW. im81. am ram ar u'um fir a P.0 box, IBI ~ns~~ctim~l123 Main Stnet I!91234bU.S.A.Iaen~rrasm numberd Cab Y cam B SWLe a rrovlnce f ZIP a posle3 cwo g corn,GranolaCahbrnla48 Nomc (I! VYIIWGmsrenor Trun Company, bmlted-b number or any r135 Chwch SM1-- Hamrlton HM1 Bermuda, - 5 -w w popemy 10 -m *may dwrq % UIX *ar? ,I1 -Yn sltech sla~em~w See tnrllvcoonr 0 yes NO, ~w-~;~.",~;~~",~~~nn - ~ l*m q -WT"O ,spm ~.~mm am ,h ~ aduIR"VWl i;! s,q.az,~ /s/ Willia. 8. rantAuthorized Representatived Caty a low e Sete o p mce I ZIPamldlcode g c-04bPrep,," * I5.".,1.",,. PI.P..O

T R X T R E A T H ~ N T . R R M I F I C A T I O H S , R H O O F I E A R A L I83Figure 11.2: IRS Form 3520-R. continued.IM~ tm?q -6,,.:m(Conr~ntredi .Schedule C-CakulaUon of lnleresl Charge (See muruaions.!54 Lnrer sccmadanrn dhwm tom IIM 43 a 47. ar amplrabls ..............s5 t nlei lax m1.10td aCcmulaf,m d6inbuum 1- Ihn~ 28 of Fam 1970 . . . . . . . . .56 Law wxtx3 alwr of lnrqn crua fmm lur 44 or 53. rr 8ppTcabk irOvnjro-lul-ysrl. b-57 Comolmed mwew rate M- M Ihs ml ilccmulaWn dYnMlon. Sez Tatb B on page 8 d WmcIm58 lnrcrrsl charge Muniply rhe amount an llno 55 by the CMDlned mrerest rate on lma 57 . . . . . . .60 11 rng w currenu to" year, dmd you ncaive more lnan I1M.W Ourlog the tar year lmr you veated 07 glRr aorsucsts 17- a nonrwdenl aih rr a ~acignI -ver. complete mlumm g Ihrwgh Irl *nth respect to each such gin or awes! ,n ncn-5 ol S5.m Ir m espre is neeem 3llach ul?eduio.IDaueol Galtk%Z,>mm Q -y Maagvu(D)Beun.7 sss nruuswns rn)aang relared dam . .... 0 var 0 ~aI_ T0Ui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I s'61 DtlinJ VII cwtmu UIX pdl.-W yav < ewe mm man 510.557 lhd yav weald as gllS fmm a 1-?n a lmqn pa4*ihip? See hswudoos rcgsrw related Omnr3 . . . . . . . co(poraua, 0 Ye.#-Yes - compkte cdunlm (a1 llrnvgh (9) wnh respec, lo rach such gill If mrve rpacc is needed, a\lilch ?cnedulcNohncdgn N- c( oma Mdi~ss d aomDl @I IClM

184 THE O F F S H O R E HONEYrequired to file the form. Acompany that is a CFC mustbe filed by the grantor of aforeign corporation as descr12. IRS Forms 8288/8288-by a foreign APT, must be fiof the U.S. real property anU.S. escrow companies or attransactions may withhold tor be personally held liableI iI II :13. IRS Form 8621, "Reteign Investment Companyrequired from certain U.S. sunit investment trust). A sepin which stock is held. Thetaxpayer's tax return, andPhiladelphia office of the IRfor not filing the return. Allforeign corporation is a PFICa qualified electing fund. Owthrough ownership of otherships, foreign trusts, or fore14. Form 8865 has beenownership interests relatinging partnership treatment). Twho controls a foreign partnyear, any U.S. person who ocent or greater interest in ason who contributes more thpartnership during the year,rect acquisition or dispositioa foreign partnership-evenpartnership. One copy of thpartner's income tax return,the Philadelphia office of th

T A X T R F R T H F H T , R A H I F I C A T I O H S . A H 0 O E F E R R A L I85partnership would generally include an interest owned by a trust inwhich the taxpayer is a beneficiary, a grantor trust, an estate inwhich the taxpayer is a beneficiary, another partnership in whichthe taxpayer is partner, a foreign corporation in which the taxpayeris a shareholder, or an interest owned by certain relatives.Elassifying Tax Havens Based on Tax AttributesFrom a tax viewpoint, an international finance center falls into oneof three tax regimens:I. Token-tax, no-tax, or zero-tax havens. This is a true taxhaven in that there are no or token taxes assessed. Someexamples of zero-tax jurisdictions are Anguilla, Bahamas,Bermuda, the Caymans, Nauru, the Turks and CaicosIslands, and Vanuatu.2. Low-tax havens. The definition of a low tax rate issubjective; however, St. Kitts, the British Virgin Islands,Barbados, the Channel Islands, and Hong Kong arerepresentative of low-tax jurisdictions.3. Special exemptions, credits, or privileges. Tax havens suchas Ireland, Madeira, Panama, and the Netherlands Antillesprovide special tax concessions to encourage the establishmentof certain types of business in their countries.I The Offshore Money Book uses two excellent publishers as an updateservice for this book. If you are interested in keeping current on the subject,please E-mail Vern Jacobs, CPA, at osj@rpifs.com and Tom Azzara attaxmanC3batelnet.b~ and request a sample copy of their offshore newsletters.Tell them Arnie referred you.2 Cash dividends from stock: At the time of drafting this book, the currenttax rate on dividends paid on stock to an offshore, NRA person was 30percent. It is by a withholding tax and is withheld at the U.S. source, eitherI

Offstiore Communications and PriuacyA country's ability to assert its sovereignty without the interferenceof outside forces (the U.S.A.) is a major deciding factor inchoosing a place to invest and protect personal property.OSCAR SABIDO,ATTORNEY, 1995, BELIZEA SIMPLE THING like a telephone bill often compromises the best-laidplans for offshore privacy. The telephone can not only reach out andtouch someone; it can reach back and bite you in the derriere. Yourlong-distance telephone service provider creates permanent electronicrecords of every offshore call you make. Upon service of asubpoena, the phone company is compelled to provide your telephonerecords-in essence, your daily telephone diary. Many privacyaficionados make their sensitive os calls using a calling (debit)card from public telephones. Only you can decide your comfortablelevel of privacy.If you do decide to use the calling card, buy it anonymously,with cash and not as a charge on your U.S. credit card. You willreceive a personal identification number (PIN) to use consisting of tento twelve digits, long enough to ward off hackers. Write it down inyour address book in code. Memorize or scramble the 800 number .

188 T H f O F F S H O R E M O H f Y B O O Kas well, and then shred the calling card. Never recharge the cardagain, especially by using a domestic credit card. It is best to get anew card each time your card has expired.For frequent callers to the Bahamas, the 242 area code of theCaribbean, you can purchase a local prepaid calling card. As anexample, with the Batelco (Bahamas Telephone Company) callingcard sold in Nassau, you can call the Bahamas from the UnitedStates, Canada, or the United Kingdom using their 800 number inthose countries. You can actually get a Batelco dial tone from Nassauin the United States and complete your call through their systemwith no records on your local telephone bill or in the United Stateslinking the call to you. Buy one at the airport in Nassau.By the time you are reading this book, it may be possible toengage in full duplex (simultaneous two-way) encrypted voice communicationsover the World Wide Web. Things are moving so fast inthe Internet communications field that you could be talking to yourasset manager in the Isle of Man in an encrypted mode over the Webusing your cable company's Internet services and not pay telephonetoll charges.Following are some of the more common ways your assets aretraced other than the traditional credit report, public records, yourchecking account, and a real property title search or personal propertysearch at the Secretary of State's office. Who will be searching?Your former (vindictive) spouse, an adversarial former partner orbusiness associate, a plaintiff or potential plaintiff, or, heaven forbid,the IRS.Passport Review and Travel Agent RecordsFrequent' visits to high-profile banking destinations without a vacationpurpose are red flags, giving snoops a place to start looking forhidden assets. Obviously, multiple visits to some of the followingcountries clearly will raise suspicion: Switzerland, the Cayman Islands,the Bahamas, Isle of Man, Netherlands Antilles, and other jurisdictionscharacterized as tax havens. The IRS has labeled over thirty jurisdictionsas tax havens.

TelephoBy examining your telephone bihotels you frequent (use a callilular phone, as well as your fadeleted E-mail messages or docuone can identjfy undisclosed buand ascertain agendas. Remembputer doesn't remove it, but simpA utility file can resurrect it. Mexamination of the telephone dwhere you live, work, or have anew CD technology inexpensivephone numbers, such telephonbecoming routine. For exampleof PBS'S "Frontline" that investitices in the Caribbean, a prospenational CD business phone difeat! He also proved my point.Frequent FMiles aren't just miles. A revie. flyer mileage statements revealsIsn't that in the British VirginAlso, an emotional plaintiff whoupset by those jaunts of yoursMiles are now given when youwhen you refinance your houseUlastebasketsGet a crosscut shredder and useded. With enough time, effort, ater-inch strips back together ag

puzzle, but it can bemine told me that thcheap shredder lulllightweight crosscutthe number of sheemachine (four to tepeace of mind it affoapeutic. (I affectionto shred any carbophone messages, phprinter ribbons frommachines. I still usevacy reasons.If you can only ain your kitchen garthem with somethindistort them, and theThat should preventSome people prcolored paper and nthat color are propersit on the desktop. Tvacy. 1t7s curious honot less, paper. Notecollection it is no loneavesdropping. AnyoSave sensitive materion your computer oaccount you have anputer. Provide the penvelope to your ofdeath or long-term dclient privilege. Wor190 T H E OFFSHOI

O F F S H O R E C O H H U H l C A T l O H S R H O P R I U R C Y 191text backups on floppies or on an unsecured backup tape. Turn offyour computer when not in use. Stop using paper records, except asa backup master located offshore. Communicate on the Internet byencrypted E-mail using PGP-anything else is an open postcard.You'll be surprised how much cleaner your desk will be, too!Business AssociatesThe people with whom you do business may have offshore involvement.Keep a list of os associates in a separate file or book, for youreyes only.Your intentional or inadvertent disclosure of offshore activitiesto the wrong people may lead to unique problems. A disgruntledworker or spouse may be tempted to blackmail you or alert the IRSor other taxing agencies on the anonymous 800 telephone lines ifthey want to be vindictive. In fact, the IRS even claims that theyoffer rewards for reporting tax fraud, but statistics show that fewpeople collect very much.Companies and private investigators may specialize in this typeof asset search. There should be no difficulty in finding your assetsonshore, but it's not often easy to search offshore because of stricterprivacy. Unauthorized disclosure of banking and financial informationoffshore is a crime in many jurisdictions.Attacks against encryption techniques are succeeding at a frighteningrate. This effort is being accomplished by governments, privateenterprises, and hackers, and through industrial espionage. In theU.S., computer secrecy experts warn that encryption "locks" proposedby the U.S. government are far too susceptible to attack. Governmentintelligence and industrial spying pose more of a threat thando hackers.Illicit decryption has become economically feasible for industry.In 1996, it was reported that a code-breaking computer system could -

192 T H E O f f S H O R f MONEY B O O Kbe devised for as little as $30,000.computer could break an encryptitwenty seconds. The current U.S. staexperts claim could be broken in thillicit decryption is around $38 per k56-bit key could be broken in as littcomputer experts now suggest a 90-Currently, self-teaching softwarmaking decryption easier. The softwcombinations of fuzzy logic and artifable to work in any language lookinin written language and the style ofBy continually iterating, a 1,024 mesfor around $7~o,ooo a page. Are yo

The Captiue Insurance CompanyAMERICAN ENTREPRENEURS have always sought to improve theircompany's bottom line, or face the consequences. A major expenseof running a business may be mandated or defensive insuiance costs,as well as basic insurance needs. In a business, costs are always underscrutiny. Whether insurance is dictated by law or carried at levelsconstituting good business practices, it still costs money. What isparticularly frustrating to a businessperson is the ratio of the substantialdollars expended for insurance premiums as compared tothe dollars returned for claims and litigation defense. The comfortof being insured doesn't necessarily compensate for the cost of theinsurance. Consequently, the concept of becoming self-insured canlook more and more attractive, to some extent, in low-risk but highpremiumindustries, mostly because of some tax benefits that exist.The strategy of captive insurance may be quite attractive to obtaininsurance where it is not otherwise available or affordable, and selfinsurancehelps avoid the need to go "bare."In the U.S., creating an onshore company for self-insurance can beso costly and time consuming because of overregulation that it is, forall practical considerations, not feasible. Voili-the concept of the

194 THE OFFSHORE HOHEY R O O Koffshore insurance company, or technically thpany (or the captive), is born. Approximatelinsurance market is offshore. Any U.S. fullhorrorstory about not being able to collect ocaptive. I believe this is the exception ratherdo sell inexpensive and non-IRS-compliant care grossly undercapitalized and unable to pThe captive may be structured in variouthe purpose and the needs:I. The captive of associated companiegroup-for example, an associationThis is the basic parent captive insuusually is a wholly owned subsidiarforming the captive (for example, wcompany wishes to create an offshorisks of its own parent).2. The group captive might also be focompanies in a certain industry banor association (trade or professionainterest, may create a captive to resneeds of the smaller to medium-sizeprofessional associations.3. Where a captive .is underutilized orfor profit, it can go into business infield and provided coverage to nonr4. A variation of Item 3, the cell captivjurisdictions. A cell creates an autoncompany within the framework of aEach cell is a separate profit and losmaster insurance company; thereforcontained.The Cayman Islands insurance 'laws defance businesses:

T H E C A P T I U E I H S U R t l H C [ C O H P R H Y 195I. One that insures a person against liability for loss dueto a risk.2. One that, upon the occurrence of a defined event, paysmoney to the insured or beneficiary.3. One that carries out the function of re-insurance (calledthe re)- among other insurers. (Re-insurance companiesshare the risk of primary insurance companies for a fee.)Expect to see Brazil become a major source of reinsurancecoverage in 2000.Initially, the captive partially protects itself against catastrophicexposure by re-insuring some of the risks with other companies, there, through underwriters or buying insurance from wholesalers. Asreserves accumulate in the captive, the necessary level of re-insurancediminishes and the reserves increase hyperbolically.Captive coverage is not limited to companies. A captive couldalso insure other entities such as groups of "related" persons, hospitals,professional practices, partnerships, LLCS, foundations, officers,directors, and so on. Several tax havens favor and court such business,such as Bermuda, the Caymans, British Virgin Islands, Turks andCaicos Islands, and Guernsey, to name a few. Bermuda is consideredthe leading international insurance domicile, but the Caymans, BVI,and TCI remain quite popular in this specialty as well. Combine a, favorable government environment such as we now see in BVI with alevel of regulation to assure the ability of the insurer to respond withqualified professionals, and this industry attracts the world's insurancebusiness. The Canadian province of New Brunswick announcedit was developing regulations on classes of businesses and fees inorder to compete in the world's captive marketplace.Why would you form a captive insurance company offshore?I. Coverage for risks not readily insurable by your regularinsurance underwriters. Examples include environmentalhazardous waste, sexual harassment, earthquake, anddirector and officer iiability.

196 T H E O F F S H O R E H O N E Y B O O Kz. Cost efficiency. If the loss history oconsiderably better than the industrpremium savings by self-insuring. Bintermediary parties in the insuranbe achieved. Costs savings can alsodirectly into the re-insurance mark3. Cash flow. There is control of the cthe premium payments while waitinRisks can be managed internally, re4. Taxation. There may be certain taxinvestment buildup benefits of thethe reserves. Here lies a tremendoucaptive has the ability to accumuladesignate them as reserves againstU.S. tax law, these earnings are freup to certain limits.Some jurisdictions offer captives "off thmight be tempting at first blush, do exploproduct and inquire as to which is the bin terms of setup costs, maintenance corequirements.Let's explore the following scenario. Wmost conservative, low-risk companies opeditionally has high insurance premiums bection affecting them or a history of high clain the field. An audit shows that for every dums, they get back only 25 cents of benefittional year and is flush with cash. As a cdoesn't have to account to outside sharehotially decide to form an offshore captivebecome self-insured, in a small way.What type of licensing should they applCaymans again as an example, there are threers. The three categories are local, exempt, athere are three types of licenses granted; casu

T H L CAPTIUE I H S U R A N C E COHPAHY 197After meeting with professionals in Georgetown (not to be con-It~sed with George Town, Bahamas) and introducing themselves toI llc necessary insurance company administrators, actuaries, and govc.l.l1mentofficials as part of the process for qualification, they cre-.trc the Paradigm Insurco, a Cayman Islands captive insurance(.ompany. Most jurisdictions restrict the use of company names such111at any word,,suggesting the business of insurance or assurance islimited only to those companies licensed as such by the jurisdiction.Some restricted words are indemnity, guaranty, insurance, re-insurtrrzce,and underwriting.The surplus cash of Widget (a domestic, or onshore, corporation)capitalizes Paradigm, and they then start to reduce theironshore insurance coverage and premiums. The officers and directorsdo some international financial planning here, as well, acquiringstock interest in Paradigm. Widget can be further capitalized byil~dividuals using cash or their highly appreciated stock, without the(exchange for their product being treated as a sale. Later, WidgetInay sell the stock without paying any capital gains taxes in the U.S.Obviously, this process is not without some concern-what ifWidget is hit with a killer lawsuit and a runaway judgment? But,I'rom a philosophical point of view, business and life itself are risks.I:ortunately, after several years of continuing low claims, Paradigmis now a fully funded captive insurer with more than adequate- reserves. Little by little, more and more of Widget's insurance is han-. dled by Paradigm. At first, Paradigm shared the. risk with otherinsurance companies, called re-insuring. By this time, Paradigm mayI,e able to share less of the risk with other1 insurance companies andre-insure or co-insure the risk through them. In general, they ulti-111ately would be Class A, which permits a local or os insurer tocarry on business on the Islands. More likely, they would start as aClass B restricted licensee, permitting Paradigm, as an exemptinsurer, to operate os but not locally. A Class B unrestricted licensei~llows Paradigm to carry out its insurance business on the Islandshut not for domestic (local) business-it is their next level beforegoing to Class A status.As this scenario unfolds, Paradigm amasses surplus funds afterclaims are paid in a tax-free, favorable jurisdiction. The offshore assets

198 T H f O F F S H O R E M O N f Y B O O Kof Paradigm are put to work and earn tax-free dividends, interest,and capital gains, all professionally managed os by an asset manager.It can operate as an insurance company anywhere in the world.Some time in the future, Paradigm may retain one or more officersof Widget as consultants and pay them for their services. Unfortunately,they may have to travel to Georgetown for many meetings.I have seen this work very well. A former environmental engineeringconsultant teamed up with his friend, who was already aninsurance broker, and formed a captive in the Caymans (joining around400 other insurance companies). The broker "cherry-picked" from hisbetter, low-risk, low-claims companies. They offered these companieslower premiums and made tons of money. All were satisfied.Is a captive insurance company right for your company? Perhapsnot now, but keep it in mind.Costs. Formation Fees, and EapitalizationCapitalization of the captive is the major startup cost. The minimumshare capitalization of the captive wishing to write property and casualtybusiness is lower than to write life insurance as well. Formationcosts in the more prestigious jurisdictions vary from $50,000 to$~oo,ooo. Capitalization for a typical jurisdiction such as the BritishVirgin Islands depends upon the type of captive formed. For a generalinsurance company, there is a $roo,ooo minimum solvency marginrequirement. For a life insurance company, the minimum solvencymargin is higher-$eoo,ooo. If you want your captive to write lifeand general coverage, the solvency margin increases even further to$goo,ooo. Don't overlook the monthly operating fees of around$2,000 to $3,000. It is not economically feasible for a small business.Typical Statutory RequirementsI. Maintain certain financial ratios and margins2. Annual audits

THE CAPTIUE INSURAHC3. Acceptable loss reserve practices4. Restrictions on certain types of assets thainvested in by the captive5. Annual statutory filings6. Audited financial statementsGlobal Insurance Besource on theInsureWeb is an insurance resource available tInsureWeb is a computer on the Internet where regagents, brokers, and re-insurance brokers-can ocrs-registered insurers, wholesalers, MGAS, and rInsureWeb serves the worldwide communityscrve any geographical area. In addition, a searchcarrier to accept business from a designated grouThe site can be reached atEndnoteI This is a pivotal point. IRC $162 prohibits a currenrniurns paid to a wholly owned (captive) insurer. If tInsurance to other companies or is not wholly owned,allowed.

Applying Ulhat You Have learnedSuccess in your venture is the journey andnot the destination.fl Case Study: Putting the Pieces TogetherLET'S TAKE A journey to an international financial center and applythe materials you have mastered so far to a case study. I have selectedthe British Virgin Islands as a proposed site for your APT and havegiven BVI my subjective rating on a scale of I to 10 in each of thefollowing areas. In another exercise, for an r~c, a different finalnumerical score for the proposed site could result.I. Geographic considerations. Only about three miles fromthe U.S. Virgin Islands (St. John). Why don't you take aferry ride from St. Thomas for a day? The British VirginIslands are a mere 60 miles south of Puerto Rico. A shorthop on American Eagle gets you to Beef ~sland, the site oftheir airport. Rating: Easy to get there, so let's say 92. Political and fiscal independence. As a British overseasterritory, the military defense of BVI is provided by theUnited Kingdom, which also handles its external affairs.Banking is monitored and regulated by the Bank ofEngland. Status of the BVI is similar to the IFC of Jersey.Rating: 820 1

202 I H t OFFSHORE H O H t Y BOOK3. Language. English is the official language. Rating: ForAmericans, 104. Currency. The official currency is the U.S. dollar. Thereare minimal exchange costs for financial transactions.Rating: 105. Economy and economic freedom. Economy: Tourism isnumber one. The financial industry infrastructure is quitegood since, based on the numbers, it is the premier site forexempt companies. It has one of the highest per capitaincomes in the Caribbean.Economic freedom: In 1999, the Heritage Foundationand the Wall Street Journal compiled an annual Index ofEconomic Freedom of twenty-seven Latin American andCaribbean countries on a regional and worldwide ranking.The Bahamas was ranked first regionally and eleventh ona worldwide basis, compared with, for example, Panamafourth and twenty-eighth, respectively, Trinidad andTobago 6/38, Barbados 7/41, Belize 13/54, and Costa Rica13/65. BVI wasn't listed, but I would put it at a notchdown from the Bahamas. Rating: 76. Political stability. A conservative population provides fora very stable community. Rating: 97. International relations. Strongly linked to the UnitedKingdom, BVI is a British overseas territory, not anindependent country. Not part of the EC. But will sufferfrom gradual erosion in banking privacy because of newconcerns about tax evasion by the U.K. and therequirements for banking transparency. Rating: 68. Political stability. Quite stable. Rating: 99. Transportation and communications. Regularly scheduledair transportation to San Juan and Antigua (another taxhaven). Good communications. Rating: 810. Time zone. In Greenwich Mean Time +4 zone. Good forthe Eastern Seaboard; poorer for the West Coast, with afour-hour differential. Rating: 8

204 THE O F F S H O R E MONlY B O O Kc. Creditors of your U.S. estate3. Why would an individual trustee of an APT be preferredover a bank trustee?4. What is the difference between the Caricom model of theIBC and an exempt company under the Channel Islandsmodel?AnswersI. Asset protection; tax planning; estate planning;substitution for a will, trust, or living trust; privacy andconfidentiality; holding entity; circumventing exchangecontrols and restrictions on hold title to real or personalproperty; tax deferral and other tax benefits.2. (a) You shouldn't return the offshore assets to the U.S. andsubject them to possible real estate taxes unless necessary;(b) You should not alert your U.S. creditors to theexistence of an os APT; (c) You should pay them.withdomestic money.3. 1 have seen a lack of permanence with bank personnel dueto transfers and job relocation. Large institutions otherthan private investment banks don't provide much inpersonal services. Better continuity may be achieved withan individual trustee or a small trust company.4. See Chapters 6 and 10.Auoidinp Offshore Scams: Greed-0-Homics 101Since you're going os, don't let down your traditional safeguards.There are less-than-savory members of the financial community (inother words, con artists) and scams all over the world. It is not auniquely U.S. problem, and the U.S. doesn't have a monopoly on

206ThenizanaivdointeryfaxI reaseenilarit wDS[TISPba

R P P L Y I H C UlHtlT Y O U H A U F l E A R H [ D 207[The money in question which want to remit into your accountis not related to arms (dealings) or drugs. It is money we gotfrom gratification on contracts we awarded to some foreignfirms towards technical assistance analysis, supervision of theoperation and behaviour of the components of the N.N.P.C. Alsosupply, erection and optimisation for the computerised remotecontrol network.]The business is, there is a floating fund of US$qm (TWENTY-FIVE MILLION U.S. DOLLARS ONLY). The fund is theinterest element of the extra gains made by Nigeria from OilSales during the Gulf War. The actual Proceeds has since beenturned over to Government. This fund being the interestelement, has remained unaccounted for in the Account of theNigerian National Petroleum Corporation.As a result of changes in Nigeria, we the men in charge at theNigerian National Petroleum Corporation (NNPC), the FederalMinistry of Finance and the Central Bank of Nigeria (CBN) havedecided to wire this money to any trustworthy company ororganisation who will at last share this money with us.You are to have 30%, 5% for Local and International expensesincurred by both parties and 65% for us (the officials). You aretherefore required to send to us as quickly as possible throughFax your Account number, Name, Address, Telephone, Telexand Fax Number of your bank.[This money is now ready for wire transfer by the authorities ofthe Central Bank of Nigeria. Into an account that will beprovided. We have finalised all arrangements for this project butour problem lies that we do not have a foreign account as suchan account is against the civil service law of conduct Beurue inNigeria. We have taken recognition of the foreign and ambassadorialnature of the contract and have made a perfect homework for a hitch free transfer of this fund into an account youwill provide.]I would like to inform you that we have made every necessaryarrangement to finish this transaction as soon as we receive yourdocuments. This business must remain secret, because individ-

APPlYlHG UlHRT Y O U H A U E L E A R N E D 209I have in my possesion the Personal Identifiction Number(codes) and Password to a Security Vualt here Europe wherethere are two boxes containing the sum US$r~million each beignpart of my father's estate which we were able to salvage duringthe subsequent passage out of my country.The Kabila government is still seeking to freeze and confiscateany assets traceable to my Late Father or any member of hisfamily, I am therefore looking for a partner who i can entrustwith the codes and password to help me remove the boxes sinceno names. were used to open the vault. You will in addition bankand invest (with my approval of the projects) as a FRONT forme, until the situation becomes more favourable.If you are interested in a working partnership please call meimmediatly to discuss in more details the Logistics andmodalities.I do not need to remind you the need for the utmost secrecy andconfidentiality, if this transaction is to succeed.Yours FaithfullyMasala.For further information check out this site:www.scambusters.org/scambusters~~.htmlThere is a Central Bank of Nigeria, but they disclaim any relationshipwith NNPC. In an effort to protect their goodwill, the CentralBank of Nigeria periodically advertises in U.S. newspapers an alert tosuch a scam. There is no NNPC that I have been able to confirm.The prestigious "60 Minutes" did an excellent expos6 on Nigeria,portraying it as a very corrupt country with a political environmentwhere bribery and payoffs rule. I saw the scam for the firsttime over thirteen years ago.In January 1996, I received a call for assistance from a desperateperson in Marin County, California. One minute into the call, itbecame clear he had lost tens of thousands of dollars and was quite

RPPLYIHC U I H R T Y O U H A U L IIAtlNtO 211(J. P. Morgan, Barclays, Credit Suisse, Paribas,Deutsche Bank, etc.) as with securities.""Offered to quickly raise tens to hundreds of millionswithout notice;' features of issuers of structure, muchhigher returns vs. publicly-available like investments,1-10 year maturity selection and liquidity provide forcontinuous demand on resale.""Instruments, programs relatively unknown; due tofears of disintermediation by large depositors inlower-yielding obligations, existence vehementlydenied by banks.""U.S. and foreign government referencing forverification, sanction available.""$ I,OOO,OOO to $ IO,OOO,OOO minimums."Don't ask me what it means! I'm still struggling with my fear ofbeing "disintermediated." Would you give the roll program promoterwho wrote the above promotional materials $~,ooo,ooo? Of coursenot. But many others did, resulting in substantial losses and frauds.Annualized returns of as high as 1,600 percent were promised in theliterature and believed by gullible investors.The infamous roll program is known by many other sophisticatedand seductive names that also use obscure vocabulary. Forexample, ponder the following terms: the prime bank note by one ofthe IOO largest world banks; the prime bank guaranty; the selfliquidatingloan; tranches; the irrevocable and transferable letter ofcredit. Once promoted by smooth, very persuasive marketers, it hasgone from slick advertising in the sacrosanct Wall Street Journal toword-of-mouth solicitations to finally being driven undergroundbecause it very likely violates federal and state security laws. If youhave any doubts, check with the SEC. For further reading, I suggestyou obtain several publications from the International Chamber ofCommerce.It continues to sell because of investors' fantasies that they'll geta much higher "insider rate" of return on their money and becausethey allow a lapse of their normal investment safeguards, failing torecognize the practical impossibility of what is being offered. Structuredas a catch-zz situation by the scarnmers, it never works and -

gulliblconditThsecuritdard atradedthe souanty sAnFloridaJudginthat itwas clOtliquidaroomsuccesspersonmissionroll propendinon alling frowho loInI reaboagaandtigaCAandThewaswasa dsav212

RPPLYIHG UlHRT Y O U H R U [ LERRHEO 213to operate the same business he used to lure individuals into 'thisfraud at offshore seminars through his company Investors Internationaland make millions of dollars from unknowing individualswhich he then uses this money to pay the attorney fees tofight those who are trying to recover the money he defraudedfrom them! And these individuals have moved all of their moneyand assets offshore to keep the people they defrauded fromre~overing~their money! SEC has a litigation release on their sitebut that's the only place I found that has any information availableto warn anyone about these individuals and their fraud!Hope you decide to list this one on your site so that it will helpget the word out and protect others from losing any moremoney!An attorney friend of mine confirmed this, so I feel comfortableincluding it here as a warning to you.The Self-liquidating Loan ScamThe "liquidating loan" ads have disappeared in business' magazinesand other publications promoting these programs, but now showup on the Net. They have gone underground, but seem to reappearon occasion. The promoters claim you can easily get a $500,000 or$~o,ooo,ooo loan without any credit check. They can't documentthat they've obtained one for themselves, but they claim to be theexperts.Obviously, anyone or any entity lending money wants to makea profit and minimize risk. "Everything must have a make sensecharacteristic to it. If it's too good to be true, boy, it probably isn'ttrue, unless you're naive," writes an OFFSHORE subscriber.Scam variations may also include the marketing of worthlessbooks or reports. "Once again, people in their greed snatch up thesebooks, making the promoter more money," continues the subscriber."Now, I do a lot of research on investment and moneymaking ideas.My background being banking, a loan officer, mortgage officer,investment broker, etc., I have spent a considerable amount of time,like everyday, reading international newspapers, magazines, etc.,r

214 T H E O F F S H O R E M O H E Y B O O Klooking for investment ideas that are real and sound. Through myresearch, I have composed a list of over 500 of the best (top) CTAS(commodity trading advisors) in the world. This kind of investmentis about as close as you can get to 'major' returns without using theroll program, which I said I don't think exists."Readers comment further of commodities and futures trading,"that this is a legitimate legal business, which is registered with theFTC (Futures Trading Commission), the government, the SEC, requiringa business operating license, audited financials, something realthat you can put your finger on and say, yes, this is real . . . nosmoke, no mirrors, no Houdinis playing disappearing tricks withyour last $10 million dollars (if you or I ever had that much!), noneof that questionable stuff. The futures and commodities business isvery risky, but that shouldn't scare away the roll program investors,since they already are in an even riskier ghost investment vehicle."Another subscriber reports, "I have also personally spoken withthe Comptroller of the Currency, and have been given the same information.I have also spoken to a top Letters of Credit officer, managerof the department at Sea-First Bank, formerly owned by BofA, andhave received the same negative reply. He is German, and has traveledthe world, and has never seen any of these work. As far as I amconcerned, the roll programs do not exist. If they do, they are rarelysuccessful, otherwise, the only way they exist is as a scam."Some will always argue that the roll program is a secret methodused only by the very elite banking community-most people and professionalsaren't familiar with it, and that's why so many people getripped off and lose millions. These people believe they know somethingsecret, possess insider information that not even the commercialbankers who do letters of credit every day worldwide and the top peopleat the U.S. Comptroller of Currency office have access to. Theybecome so caught up In the scam and mesmerized with the euphoriaover the possibility of making millions that they lose all ability (if theyever had it) to use good judgment, logic, reason, and especially to exercisedue diligence before getting involved. Our subscriber summarizesquite well with this statement: "The promoters, white collar criminals,who market these scams know that the victims are greedy, and theyare masters at manipulation of this personal weakness of the victim."

APPLYIHC W H A TPitfalls of Brib(Infortunately, in many jurisdictions, thequently "greases the palm" with what is coIn the FSU, the traditional Eastern EuroI7ribery as everyday business practice. FolAmericans into serious problems with theviolating the Foreign Corrupt Practices1977, more than seventeen companies haauthorities for bribery, leading to fines a;~lso be prosecuted with an additional civFaretuell to the ReluctanIf you still are asking, "How do I get backI have apparently failed you. If you weryour assets are not yours any longer! Thprotection. After studying this book, youshore consultant better when he or she exWith the correct language in the trtrust could reserve the power in the trusubstituting other property of equal valu- edge is a dangerous thing. After reading. have what it takes to play games offshoreluck to you. I don't even want to know yenue Service has many smart people andthey will wear you out, timewise and cashbases to trace your transactions. Tax evand it is a crime. The IRS may assess a taxfor tax fraud.Any time some promoter wants to seconcept for asset protection or tax avoid"aggressively utilized by prominent famiMellons, Rockefellers, Fords, and Hunts,"formerly, only the rich could use these sto the nearest exit. You'll thank me later

216 IHt OFFSHO.RETax-neutral strucasset protection. Don'tOffshore tax defachieved by using arrinsurance policies, oror banks, all of whichAsset protection imeasures are imperatestate planning. Youcreditors if you implknowledge of a bonayou manipulate the legtage to conceal assetcreditors. The judgesdents and proceed onyou can't afford to apearly bona fide intentpasses os strategies asveyance attack withinCompetent local ptax arena are difficulpicture. This is not thtic professionals, as myour best friends ofprofessional diversityPractice privacy. Gthen thank Phil Zimmfund. Although the U(claiming he was instrthe Internet, a federadetermine the extent oAfter studying Thprepared to attend seutilizing offshore struprised how much incillegal material and insome seminars are me

lPPlYlHC UlHAT Y O U HtlUE L f R R N I O 217plunge, why don't you visit the offshore people with whom you willr-[)trust your money? Be careful out there!Lest you get the wrong notion after reading this book, for theI-ccord, I love my country, the U.S. of A. During my lifetime, I havevlsited over twenty-five countries and still believe that ours is theI~st on earth, even though the so-called American Dream is fadingsomewhat. Nevertheless, our American civilization is definitely notcrumbling, just being redefined under a new model.But I don't like the runaway growth of government; I don't likeI he gradual intrusion of government into my private life; I don't likerl~e blur of distinction between the two major political parties inour country, the Republicrats and the Democricans; I don't like itwhen the interest on our national debt eats up most of my federaliricome taxes; I don't like an income tax system that is incomprehensibleand unfair, one that only a CPA can interpret; I don't likeconfiscatory taxes and social engineering redistributing our hardc,lrnedwealth; I don't like corporate America's lack of social responsibility;I don't like overregulation by government controlling ourbusiness and personal lives; I don't like the moral lapses in Washington,D.C.; and I really don't like our present litigious society drivcnby a surplus of very creative attorneys. But this still is a greatcountry with the highest standard of living in the world! This is mypcrsonal commentary as the author, hopefully not construed by you- :IS being too negative.See you on Paradise Island, or in Basseterre or, even better, theC6te d'Azur-but only for a "visit."Au revoir.ArnieE-mail: offshore@bahamas.net. bsP.S. Keep on surfing the Net! Let me know of any interestingoffshore sites.

Tax Havens of the Ulorld" felt,'THIS CHAPTER INCLUDES a discussion of some of the attribhtes of taxhavens of the world that will give you a sense of what is importantIn the evaluation and selection process. Following this discussion iscomparative information on a mklange of selected IFCS. It is not aprecise shopping guide but a report, a narration of what I have seen,and observed.This chapter is not intended to be a substitute for the many finebooks that compare and characterize the tax havens of the world. Itis a presentation of my impressions of several havens, my candid comments.From it, I trust you can develop your own yardsticks for evaluatingand selecting the havens in which you feel most comfortable.Depending on how you define a tax haven, there probably aremore than fifty tax havens in the world. Because of the limitationsof this book-so much to write but so little space-only some arediscussed. But total exclusion from this list does provide a message;1 would probably not use them.

APT = Asset protupon the haveBWI = British WIBC = Exempt coappropriate, dordinance of tNR = Not rankedNWI = NetherlanWI = West Indies+ = Favorable- = Unfavorable___- Really avNR A newcomer (Aasset protection, Ala"tundra trust." In reawe won't know whethcase. I don't want mying to divert AP businmust we wait to evaltundra trust is structcurrent beneficiary, aAlaska has no rule athrift trusts can appatax. There is a fourveyances;private nontrustees and investm220 THE OFFSHORISeleThe following list inc10) and is presentedscore of 10, becauseis no such thing as aPlease note:

T R X H A U E H S O F T H E UlORLO 221Alaska. Some of the features of the new Alaska trust statute arereported to be substantially identical to section 456.080.3 of theMissouri statutes of 1989. To read it, just go to one of these sites:NU This tax haven in the Channel Islands is northeast of Guernsey.New Companies Law Ordinance of 1998 regulates foreign companiesoperating in Alderney providing a Register of External Companies,a public record.RndorraNU Andorra is a low-tax jurisdiction with a population of 63,000.It has excellent banking secrecy laws and no taxes on income, capitalgains, capital transfer, inheritance, or sales. There is no national currency,though the Spanish peseta and the French franc circulate. Thereis no foreign exchange control, and numbered banking accounts arerlvailable. Foreign persons are permitted to hold secret bank accounts,and accounts are held in all major world currencies. No tax is leviedon earned interest and dividends on bank accounts.Bnguilla6 Anguilla is a British overseas territory in the British West Indies.It's a low-profile haven with banks monitored by the Bank of England.APT legislation is in place. Anguilla passed a new ordinance in December1998 to increase its attractiveness as an IBC site, and it has one ofthe most high-tech company registrar offices in the world. Anguilla'sACORN system (Anguilla Commercial Online Registration Network)permits electronic incorporation 365 days a year, twenty-four hours

4 Antigua has a hisuccessful 1998 defenon deposit there, as wmay encourage moneyincome in the easterninformation exchangexecuted the MLAT wlish common-law juriian gangster influencEuropean Union Bandiction's inability toCommerce problem lFor IBCS, Antiguafidentiality. Its bankifor the recovery of mfound that the U.S.Swiss American Banrelating to the fundsIn 1999, the U.S.especially careful ofAntigua and Barbudais softening its moneyare now required tobetween the U.S. anAntigua bank, expeccies to take a close lo5 The Netherlands Akingdom of the Nethislands of Bonaire, Cu222 THE OFFSHOREa day, anywhere onements may be filed ein maintaining very l

T A X H A U E H S O f T H E UlORLD 223;~nd Saint Maarten (Dutch side). Aruba has a Dutch legal system andis known for eleven lavish casinos (suspected of money laundering for(:olombia and Panama and of corrupt local politics). Banking privacylias been eroded by laws entitled Melding Obgebruikelijke Transacties,requiring banks to report any "unusual transactions." The Freezone is;r lso under investigation involving money transactions.8 Austria is a highly developed, stable democracy with a moderncconomy and excellent banking privacy (+). It is a principal gatewayto transacting business in the former Soviet Union.H This is a very mature tax haven-an independent country since1973, the third oldest democracy in the world. In 1999, tourism prov~dedfor more than SO percent of its gross national product. The1999 Index of Economic Freedom of Latin American and Caribbeancountries ranked the Bahamas first in the region and eleventh world-\vide. More than 400 banks and trust companies are registered there(+). The Bahamas is in the same time zone as the U.S. Eastern zone(+), and it has enacted APT legislation and the International Business(;ompanies Act (patterned after the successful BVI act) (+). The jurisdictiondoes not recognize foreign judgments. It is the fourth largestIn ~nternational banking, and has new, stronger criminal legislationwlth respect to money laundering.There is no requirement to retain books in this jurisdiction, andthere is total privacy at company register. The Bahamas is second inpopularity for IBC formation to the Caymans, and more than 90,000IRCS are registered there. There is a two-year statute of limitations forfraudulent transfers to an APT; rule against perpetuities is based on a"wait-and-see test" (-). Certain tax attributes are very favorable,such as no personal or corporate income taxes, no capital gains taxes,no withholding taxes of any kind, no gift or death taxes, no inheritancetaxes or death duties, no probate fees, no sales taxes, and noemployment taxes. Guarantees against future taxes are provided bythe government for periods up to 50 years. Exempt trusts can receive

a guarantee up to rois essential for the Bbility for the countryTrust Act, which provBahamian law regardcile of Trust permitsrecognize the concepand the Fraudulent Dfraudulent dispositioother jurisdiction.6 for tax-haven attlow-profile haven wiand no recognition ofaround twice the siz140,000 highly skilledizens speak English,use, as is the Barbadohas been an independforeign ownership ofstructure, banking (4and accounting proExpress, DHL, and upan attractive jurisdictU.S. and other countra low-tax jurisdiction224 THE OFFSHORENRA tax haven.NR Prior reputationworld.

TRH H A U E H S O F THE UlORLD 2253.5 This Central American country (the former British Honduras)IS not yet in the same league as the Bahamas, Bermuda, Costa Rica,and the British Virgin Islands. It is a developing country and has along way to go to reach the higher level of performance and professionalismprovided elsewhere. However, it has enacted APT legislation.It is at a lower tier in the os world's listings of tax havens, .not yet an international financial center. You should want and needInore than a tax haven. Belize's banking system survived an attackby the U.S. SEC attempting to recover funds.As a retirement location in Central America, some dislike it andothers think it's great. Belize brings in the retirees' money and createseconomic gains for the locals. There really are only two CentralAmerican retirement locations on my os list-Costa Rica andBelize. Between the two, I still prefer Costa Rica. It has beenreported that close to 30,000 Americans have retired in Costa Rica,which is a brief flight from Los Angeles, Houston, or Miami.Belize is a relative newcomer to the world international financialscene and has much to learn, including how to create rhe correctpolitical and regulatory climate to attract flight capital and offshoreconsultants' business. Belize's regulators appear to be ineffective. TheInternet is awash with offers for $200 Belize trusts, and they arebeing sold in a multilevel marketing scheme. Noncompliant claims ofU.S. tax-free income abound. You can't get an efficacious and worthwhiletrust deed for $zoo! You don't want a trustee who drives ataxicab by day and writes trusts at night. I'm concerned for thosewho may be deceived with a false sense of accomplishment and protectionbut in reality are left holding a weak, nonpersonalized trustaboilerplate document. And what about those $850 second-yeartrustee fees that they don't mention? There is no recognition of foreignjudgments (+), and no statutory recognition of creditor "classes"(+). Belize has enacted APT legislation (+) and encourages redomicilingof foreign IBCS in its jurisdiction, waiving first-year fees. Morethan 11,000 IBCS are registered allowing bearer shares and no disclosureof shareholders.

226 T H E O f F S H O R E M O N E Y B O O KBermuda8 This British overseas territory is only a brief flight from NewYork. Bermuda has a very high cost of living (-), good employmentopportunities for expatriates, and good infrastructure (+). It is theleast expensive location for an os mutual fund (+). Bermuda has noincome tax, withholding tax, capital gains tax, capital transfer tax,estate duties, or inheritance tax (+). However, Bermuda does recognizeU.S. judgments (-), and has no binding effect upon choice oflaw (-). Bermuda has enacted APT legislation (+), and permits a 100-year vesting period (+), where required; there are no provisions forthe settlor being his own trust protector (-). The statute of limitationsis six years and allows claims arising within two years of trustsettlement (- -). There is provisional abrogation of the Statute ofElizabeth (+). Bermuda amended its IBC companies act in 1998, makingit a good site for IBCS (+). Certain tax attributes make Bermudaparticularly attractive-guarantees against future taxes are providedby the government for periods up to 50 years. Exempt trusts canreceive a guarantee up to loo years. Insurance business is closelylinked with London and New York in what is referred to as the"world's central insurance triangle," In fact, Bermuda is consideredthe os insurance capital of the world (+). It has an excellent supportinginfrastructure and serves as the offshore arm of the Americaninsurance industry because of eagerness to take on re-insuranceand risk sharing, less regulation; more privacy, and rapid responseto customers' needs. Bermuda is the home of os subsidiaries of manyU.S. insurance companies. Disputes are settled by binding arbitration.There is no guaranty fund for failed companies.(-). Bermudahas 1,400 captive insurance companies.British Ouerseas Territories [in general1Flash: Watch the slowly spreading banking and fiscal transparency inthese territories mandated by pressures from the U.K. In 1999, theU.S. (through the U.K.) was successful in forcing the four British territoriesin the Caribbean and Atlantic region (Bermuda, Caymans,British Virgin Islands, and Turks and Caicos) to cooperate with U.S.authorities in the investigation of alleged money-laundering and tax-

evasion offenses. In 1999, the Islerhe formation of new nonresidentimposition of EU standards on thBritish U8 This British overseas territorrnutual fund (+). Banks are monitviding bank stability. One must mhank accounts. Special tax lawsrhan 220,000 IBCS are registere(-++)-there is total privacy at comare permitted. Trust laws are weheen enacted (-). Bvr is the premInore IBCS than any other jurisdiCanary6 It has implemented new comppay only a I percent annual tax,tcd-for os business only.CamNU Landlocked Italian domainpersonal income taxes.CaymaH This British overseas territorlargest tax havens. It is an Englisfifth largest offshore IFC in the wcompanies (monitored by the Banlion (U.S.) on deposit, and z8,olocale for an os mutual fund (+rate income taxes, and no capitaThe statute of limitations is long.in the Bahamas and BVI (-). Fore

228 THE O F F S H O R F H O H E Y BOOKbut an MLAT with the U.S. is in place (-). The Cayman Islands servesas a situs for mutual funds and insurance companies, including the"rent-a-captive" cell type of insurance company. Caymans mutualfunds are particularly popular with the Latin American markets.The IBC Act of 1990 requires meetings to be local (-). The governmentregisters directors (only one director required), bearer sharesare permitted, and there are no corporate name restrictions. Foreignlanguage registrations are accepted, even in Chinese, providingthere is an authenticated translation by a Cayman Islands-approvedtranslator. There is no privacy at company register. The Caymansenacted new APT legislation in 1998 (+), with laws that are consideredmodels for other banking jurisdictions. A unique feature ofCayman's APT law is that there need not be a full nexus for thetrust-the trustee and trust assets may be situated in another jurisdiction.Only a creditor in existence at the time of creation of the APThas standing to sue (future creditors are without standing). The sixyearstatute of limitations (-) on the ability of a creditor to attacktransfers of assets to an APT is a major negative factor. It appears thata U.S. bankruptcy trustee would not have standing to enforce aderivative creditor right, and only the actual creditor could file anaction in the Caymans against the trustee (+).The Caymans is considered susceptible to U.S. influence (-). Along (150 years) perpetuities period (+) and positive tax attributesmake the Caymans particularly attractive. There are no personal orcorporate income taxes, no capital gains taxes, no withholding taxesof any kind, no gift or inheritance taxes or death duties, no probatefees, no sales taxes, and no employment taxes. Guarantees againstfuture taxes are provided by the government for periods up to zoyears from registration; exempt trusts can receive a guarantee up toIOO years. An IBC may be redomiciled in another jurisdiction butcontinue to oQerate as a Caymanian company. The Cayman IslandsStock Exchange was introduced in January 1997.The Channe'l Islands8 The Channel Islands has low tax rates, as well as some reluctanceto implement APT legislation. Where the trust deed contains

Cook Irhe necessary powers, a trustee hInw of a Jersey trust (as distinc;inother jurisdiction; trusts have trtrue in that Jersey will accept orpcxempt from many EU regulation5 The Cook Islands recognizes t(+), but is considered susceptibleZealand (-). Standard of proof foof proof "beyond a reasonable d(;oak Islands has a somewhat ovstatute that some characterize asrnents are not recognized (+); AP;~nd a special APT called the inteIslands has the shortest statute ofFrom the date the claim arose (+) oFcr of the asset to the trust to thei~nticlaimant laws (+) (there needrhe trustee and trust assets may bOnly a creditor in existence at thhtanding to sue (future creditors astatute of limitations (-) on the a. fcrs of assets to an APT is a majoris sometimes used as a final flight;~cteristics: for example, it providegrant" (recandled or moved) trusperiod, and permits a quasi-chariThe "Orange Grove" case deimpact upon statutes of limitationtlictions. The opinion in the case wlslands APTS as shams. The trial jucerned that the jurisdiction's lawoff the claims of creditors so quignore fairness and would make tdiction in the eyes of the rest of th

judge held, the Cook Islandssaid to the world that it reallyvery quickly, and that its finamoney creating APTS. The dcomfortable ignoring the Cooislative position. A 1999 repmoney-laundering center byhide Russian mafia funds. Vatries named.5 Cyprus is a developed Mfacto into two areas. The gothe internationally recognizedtice its control extends onlythe island. The northern areaish Cypriot administrative z230 T H I O f f S H O R E HOHfY7 Costa Rica is a stable Cretirement country in Centravery high, affecting the exchmiddle-income developing cotion, classified as a low-riskical, financial, and economicsusceptible to U.S. influencement with the IRS has erodedance program, self-insured abanks, is pending.NR Cuba is a future tax hanity presently for all but Ameing with successful offshortax-haven status.

F-T A X H R U E N S O F T H E UlORLO 231I 983, this section declared itself the "Turkish Republic of Northern(:yprusy7' which is recognized only by Turkey. Foreign judgments:Ire not recognized (+); APT legislation has been enacted, but Cyprusis still considered a raw, untested jurisdiction. The Greek zone hasi~ttracted several foreign banks. Cyprus is currently reported to beon the UN red list because of money-laundering practices.NR Delaware passed laws that permit you to establish a trust toprotect your assets from your creditors and name yourself as beneficiary,but the state is still not tested by the legal system. Until thattest occurs, it is not a good site for asset protection.Denmark8 Denmark seeks to become a tax haven by providing an attracrivetax system and holding company structures. Denmark plans tointroduce a system that offers significant tax breaks to holding companies.The following measures have received a first reading in theIlanish parliament: Withholding taxes on company dividends transferredout of Denmark to an overseas parent company would be;ibolished where the overseas parent holds at least a 25 percent ofshare capital of the Danish company. Dividends received by a Dan-. ish company from foreign nonfinancial subsidiaries would be taxtree if the parent company holds at least a 25 percent of the sharecapital of the dividend-paying company for a continuous period of;it least one year.Dominica5 Dominica is the northernmost Windward Island in the WestIndies. Another example of an obscure tax haven, Dominica is adeveloping island nation located between Guadeloupe and St. Lucia,off the beaten track, with a low profile and a friendly business-oricntedgovernment. Dominica wants your tax haven business. Still relativelyunderdeveloped as an offshore financial center, its governmentis always interested in discussing business ventures providing mutual

T A X HflUfHS O F THE WORLO 233.;eriously downgraded this haven in March of 1999 because of theway it mismanaged a banking scandal involving its jurisdiction.Guernsey8 Guernsey is one of the better-equipped IFCS (+), but is not a common-lawjurisdiction (-). Guernsey is located off the Normandy Cherbourgpeninsula between the French and British shores. This premierChannel Islands jurisdiction manages more than U.S.$IOO billion forthe offshore community. Although Guernsey trades with the EC, it isoutside of the "EC directive" intended to harmonize the old financialdirectives of the EU, and thus can be unique. It is part of the BritishIsles, but not the U.K. It was given the right to domestic self-government.Politically stable because there are no political parties, it has alow-tax regimen. There are no inheritance taxes, death duties, capitaltransfer taxes, or VATS. With an abundance of professionals and awell-regulated financial environment, it attracts IFC business from theglobal community. Its more than seventy-three banks from seventeendifferent countries and more than thirty-five captive insurance companiesare certainly a testimonial to its position as an IFC. It has anew product, the protected cell company-it is a legal "person," andeach cell is segregated from the other cells. Ranking of this haven willbe reduced since Guernsey is complying with the U.K.'s demands that- ~t essentially close its offshore financial service centers and becomefully fiscally transparent within the European Union.Hong KongNR The jury is still out until the control by mainland China stabilizes.In 1999, increasing Chinese influence on Hong Kong laws ledme to believe that Hong Kong will diminish in importance as a taxhaven.Ireland7 Ireland has established (in 1987) an international financial servicescenter (IFSC) in Dublin. It is a full EC member and a good localefor management of an os mutual fund (+), though it is a costly j

234 T H E . O F F S H O R E H O H E Y BOOKdiction for formation of an os mutual fund (-). There is a doubletaxagreement with the U.S., and the local government believes thattheir IBCS are being misused. Called Irish nonresident companies,newer companies (IBCS) must disclose the beneficial owners (-); thisrequires using a second entity, either a trustee owner or a second IBCthat issues bearer shares. The tax rate is not more than 10 percent;Ireland is one of the most tax efficient countries in the EU for nonresidentcompanies. Irish nonresident companies are extremely flexibleand may engage in any lawful business in any country and in anycurrency without restriction. Nonresident companies pay no tax tothe Irish Inspector of Taxes; nominee directors and shareholders areallowable; there is no annual exempt fee or government duty; companiesgive the protection of limited liability in the execution ofbusiness. The Republic of Ireland is the only full member of the EUoffering these facilities. In mid-1999, Dublin was reported to be themost rapidly growing international financial center. The growth rateexceeded those of Bermuda, Jersey, and the Caymans.IIsle of Man8 The Isle of Man maintains a very high standard for regulations.It is under pressure from the U.K. for more open banking and companydisclosures. It is not an APT jurisdiction and it has high establishmentand annual costs (-). It has excellent regulatory monitoring(+) and is a safe haven, with zo percent income and corporate taxesand no capital gains or inheritance taxes. It has high incorporationcosts for an IBC (-). It has not enacted APT legislation (-), has notoverridden the Statute of Elizabeth (-), and has newly enacted LLClaws that do not require directors, shares, or audit, and are tax free.In 1999, under severe pressure from the U.K., the Isle of Mangovernment proposed "an immediate moratorium" on the creationof the special class of nonresident companies, which has been criticizedby the U.K. It was suggested that they served as "attractivevehicles for evasion of taxes in other jurisdictions." The Isle of Manalso announced that it would immediately regulate corporate serviceproviders and amend its double-taxation treaty with the U.K.This is only the start, and the U.K. will continue to put more andmore pressure upon the jurisdiction for total fiscal transparency.

8 Jersey is c~nmany. It is an excin 1998, no exchpercent since 193services industrietunately, Jersey isit succumbs to U5 This newcomcial center (IOFCwhich English iIslamic financialing and serviceinsurance compawith residents, a7 Liechtensteicodes. It acceptsdouble-tax treatwith Switzerlanform of a codifbest and most flas the private foa model in otheprovide trust seNR Jamaica is asystem is in shamNRA tax have

236 T H E O F F S H O R E H O H E Y B O O KLuxembourq7 Luxembourg has more than 190 banks, and is the leader amongoffshore mutual funds, with more than 3,700. The legal system isbased on civil law. It accepts compulsory ICJ jurisdiction. Languagesinclude German, French, English, and Letzeburgesch. In general, itis an outrageously costly locale for an os mutual fund (-).Madeira7 This gateway to Europe has special tax concessions for preferredbusinesses and a promising free-trade zone. Shelf companies areavailable, including Madeira's special SGPS holding companies.6 IBCS are available.MalaysiaINRA tax haven.MaltaHorthern Mariana IslandsNR Located in the Pacific Ocean, Northern Mariana is reported tohave one of the most complicated tax systems in the world.Marshall Islands6 An independent country, the Marshall Islands has enacted APTlegislation (Trust Act of 1994). Trusts must be registered with theregistrar (-) and must have two local trustees (-).Mauritius7 Sited in the Indian Ocean, Mauritius is a developing nation witha stable government and a growing economy. It is a gateway (usingholding companies) to India, the Middle East, and South Africa. It

T R X H R U E N S 01: THf UIORLO 239Netherlands Bntilles8 (Excludes Aruba.) The Netherlands Antilles is an autonomous partof the kingdom of the Netherlands. The Netherlands Antilles includethe islands of Bonaire, Curacao, Saba, St. Eustatius (also known asStatia), and Saint Maarten (Dutch side). This is a good locale for anos mutual fund. It is opening a new free-trade zone, the Hato FTZ, providingspecial tax breaks. It is a good source for second passports forretired people (+) and is excellent for holding companies (+).Neuada7 Nevada is the only state in the U.S. that does not prohibit corporatebearer shares (+). It has no income tax information exchangeagreement with the IRS (+), but also has the highest IRS corporateaudit rate of all the states (-). Following are some of the characteristicsthat make Nevada a U.S. tax haven for Americans holding offshoreassets that have returned, and for foreigners. Wyoming is alsopopular with the Germans for similar characteristics. The principalattributes of the Nevada corporations are:I. No corporate income taxes2. No taxes on corporate shares3. No franchise taxes4. No personal income taxes5. No information sharing agreement with the IRS6. Nominal annual fees7. Minimal reporting and disclosure requirements8. Names of stockholders are not of public record, indirectlypermitting bearer shares9. Officers and directors may be non-U.S. persons10. A director need not be a shareholder

TRH H R V E H S O F THE UlORlD 2414 Niue, an example of an obscure South Pacific tax haven, islocated just east of the international date line. It is a British commonwealth.Although a self-governing territory, it ultimately comesunder the jurisdiction of New Zealand. New Zealand has put pressureon Niue to clean up its act and reduce incidents of money launderingby tightening its laws. Niue permits oral trusts; written trustsmust be registered with the registrar (-). Niue has tried to assure corporateform security by copying the typical IBC style of legislation asused in many Caribbean jurisdictions (+). Its trust laws are still notclear (-). Any one of three languages may be used in drafting the IBCdocuments: English, Chinese, or Cyrillic. (Take a Cyrillic documentto your U.S. lawyer to have it explained to you!) It would still becheaper to create a company in the Bahamas. The fees in Niue wouldbe about the same as in BVI. Niue has enacted APT legislation.NRA tax haven.PalauPanama6 Ranked 45 out of 174 countries in 1998 as far as achievements inhuman development, Panama has the Stiftung type of private foundation.It has fully recovered from the U.S. "invasion" to captureGeneral Manuel Noriega. It has zero inflation rate, a lower cost of livingthan Costa Rica, no tax on foreign source income, special taxbenefits, and strict banking privacy laws, but consequently suffersfrom a reputation for bank money laundering for drug money. Somespecial opportunities and structures include stock companies, openship registration (providing the so-called "flags of convenience"), thecolon free zone, the Panama Canal, trusts, factoring, and the privateinterest foundation (PIF). The PIF as an entity is the latest structureestablished by the Panamanian legislative branch. The PIF is a legalentity and consists of the following essential parties: a founder, who

242 T H E O f F S H O R F H O N E Y B O O Kestablishes the foundation and funds it with assets, referred to as thepatrimony; and a foundation council to administer the PIF'S assets,complying with the charter and objectives of the PIF.For IBCS, Panama features low incorporation fees (thus it hasmany more registered corporations than most other offshore tenters).It is more complex for an IBC than other jurisdictions in somerespects. There is no required minimal capitalization; bearer sharesare permitted; a minimum of three directors are required (may beany nationality); natural persons are required as officers; and a president,secretary, treasurer, and a registered Panamanian agent domiciledin Panama are required. The IBC can have perpetual life or bea company that is limited in duration. Panama has enacted Liechtenstein-typetrust laws (+).St. Kitts [St. Christopher1 and Neuis7 A low-profile, twin-island federation located in the northern partof the Lesser Antilles in the eastern Caribbean. This stable parliamentarydemocracy with an English common-law legal system featuresa state-of-the-art telecommunications system, including Internetaccess. Foreign judgments are not recognized. St. Kitts is a source ofsecond (economic) passports, as well as exempt companies, companieslimited by guaranty or shares, and partnerships. Companies maybe structured as being exempt from local taxes. No personal incometaxes exist, but generous investment and trade incentives do. MLATwith the U.S. has not been executed (+). There are no gift, sales,turnover, or estate taxes, but nonexempt companies are subject toup to 38 percent income tax on profits. Currency is the EastCaribbean dollar (ECD), pegged at a rate of I equals U.S.$z.?o.St. LuciaNR St. Lucia is a developing island nation with over 160 lawyersand more than 30 law firms; it recently established an offshore orinternational financial sector. New acts are being passed: IBC Act,Registered Agents and Trustees Act, International Trust Act, InternationalInsurance and Re-insurance Companies Act, and the

T A X H R U l H S O F THE UlORLO 245The infrastructure is still not fully developed. Financial services areregulated by the Financial Services Commission. There are noexchange controls. There is daily FedEx and DHL service. Tcr isemerging as a captive insurance jurisdiction. It has enacted new(1998) APT legislation, has a three-year statute of limitations fromdate of transfer, and uses the bookkeeping test for solvency of settlor(+). It is an excellent IBC jurisdiction (+ +).United Rrab EmiratesNRA tax haven.U.S. Virgin IslandsNR Used as an FSC holding company situs for U.S. companies toachieve tax breaks.Uanuatu4 Formerly called the Anglo-French Condominium of the NewHebrides, this nation of eighty-three islands in the South Pacific isone of the fastest-growing industrial environs in the Pacific Rim. Itis catering to an explosive growth in this region for tax havens. Itoffers the ability to create private banking (of questionable value) ata relatively low cost, either for one's own business or personal needsor for providing merchant banking services. One of the principalreasons for locating here is economics: the country is still small andseeking entrepreneurs, so the establishment costs are cheaper andthe regulatory agencies are more cooperative. Limiting pressures canbe successfully exerted by Australia and New Zealand.There are no domestic income taxes or exchange controls. Serviceproviders have complained of the slowness of the local bureaucracyin getting things done there (-). A 1999 report stated that itwas being used as a money-laundering center by "apparently American"middlemen to hide Russian mafia funds. The Cook Islandsand Samoa were the other countries named. .

Clossar yabusive tmsts. A sham combination of onshore and offshore trustsintended primarily for tax evasion (marketed with illegal income orestate tax claims) and the subject of constant scrutiny and attack bythe IRS. Such trusts are usually offered on the Internet or by seminarsby trust promoters, are a mass-market product, and are clearlyillegal. The promised unrealistic tax advantages should be their tipoff.The five general types are called: the business trust (also theUBO or BO), the equipmeat or service trust, the family residencetrust, the charitable trust (don't confuse this with the legitimate charitableremainder trust), and the final trust.accommodation address. A mail fowarding site, also called a maildrop. For privacy, offshore mail to U.S. persons containing foreignstamps and return addresses are not desirable. Instead, one shouldarrange for a U.S. addressee to accept the mailings and forwardthem according to standing instructions. See Appendix C for such amail forwarder.actuary. A trained statistician who (in the context of this book)performs a calculation based on mortality, date of birth, and health ,

248 T H i O F F S H O R E H O N E Y B O O Kof an annuitant, as well as other tables, to determine the parametersof an annuity. The actuary is usually aided in this. task by computerprograms complying with IRS guidelines.adverse trustee. An archaic term denoting one who has a substantial,beneficial interest in the trust assets as well as the income orbenefits derived from the trust, or a trustee related to the creator bybirth, marriage, or an employer-employee relationship. The term isgenerally found in the context of the so-called business trust or dualtrustprogram, and is to be avoided as not being a U.S. tax-compliantstructure.advocate. A term used in some British common-law jurisdictions(Isle of Man, Channel Islands, and Scotland) for either a barrister orsolicitor.A.G. A German public company called an AktienGesellschaft. TheA.G. is supervised by its board, called an aufsichstrat.agent. An individual or organization appointed by a principal toact on his or her behalf with the power to bind the principal. Thisplaces the risk of financial exposure upon the principal, along withplacing the right to bind that principal in some other party's hands.The power of the agent varies in jurisdictions, and the status shouldbe verified. Certain jurisdictions prohibit the assignment of theagent's powers by the agent to another. The Small Business Job ProtectionAct of 1996 created a new form of foreign trust agent. Sincea foreign trust is now required to provide reports to the IRS aboutthe income and assets of the foreign trust, the foreign trust isrequired to appoint someone (usually the grantor) to serve as anagent to whom the IRS can send legal notices.all crimes anti-laundering legislation. U.K. laws whereby tax evasionis considered a money-laundering crime.alternate directov. Where permitted by law, a director may appointan alternate to vote for the company 'on behalf of the absent director.American Depositary Receipt (ADR). Used by giant multinationalcompanies to trade their stock on the New York Stock Exchange. It

APT. Seearticlescles of inration ar'avoids thwith SECannual mtors in wof the comeetingsannuitanment) ofthe termannuity aannuity.an unsecindividuato providmined inanstalt.the founnot haviThe sharare geneownershanstalt isanti-defachievedcompanibenefit teentity, anof the U.AP. See

250 I H E 0fFSH.ORE H O N [ Y B O O Krules and regulations for the management of the corporation, IBC, orexempt company.asset. Real or personal property having value. Without value, it ismerely a property holding with potential.asset manager. A person appointed by a written contract betweenthe IBC (or the exempt company) or the APT and that person to directthe investment program. It can be a fully discretionary account, orlimitations may be imposed by the contract under the terms of theAPT or by the officers of the IBC. Fees to the asset manager may bebased on performance achieved, trading commissions, or a percentageof the valuation of the estate under his or her management.asset protection (A@. Taking a proactive position with one's assets(real and personal property) and legally placing them beyond theimmediate reach of potential or future claimants, creditors, and/oradversaries. This goal is achieved by making the asset unattractive(by the placement of debt or encumbrances) and legally unreachableby such claimants.asset protection tvust (APT or FAPT). A special form of irrevocabletrust, usually created (settled) offshore for the principal purpose ofpreserving and protecting part of one's wealth offshore against creditors.Title to the asset is transferred to a trustee. Usually tax neutral,its ultimate function is to provide for the beneficiaries of the APT.asset stripping. Reducing the equity in real property or placingdebt on personal property to make it a less attractive asset and thusreduce risk of litigation; more simply, acts that discourage litigation.authorized capital. With respect to a corporation or company(IBC), the sum value of the aggregate of par value of all shares thatthe company is authorized to issue. See also flight capital.badges of fraud. Conduct that raises a strong presumption that itwas undertaken with the intent to delay, hinder, or defraud a creditor.Bank of Credit & Commerce International (BCCI). An internationalbank established by Pakistanis in Dubai some thirty years ago

that failed spectdle Eastern oilinfamous rogueembourg, it hadU.S. and globaland the launderagenda by somfailures, financimajor changes i1991. In 1996, aR. Pharon $37 mBank of InternaFederal ReserveGroup of 10 (Gital adequacy athe central banmonthly meetinmarkets.beneficiary. Tgrantor, settlor,course upon codeed. The fullycould be a char"classes" in ternblack money. Dof prior criminaor drug traffickcustomer requirshore service prBCSB. Base1 Cobeneficial interthrough a nomowner's equitabvenience, and a

252 THE OBO. Businerated busineboard of trusors to the tture. See alsBritish Comas their heaorder basedion of CanaBahamas, GSaint Lucia,Barbuda, SaBritish Weoverseas terman Islandsbusiness truing or engaghave a businB ~ I . Britishbylaws. A cand regulatioshore compaCanadian Dequivalent tocapital. SeeCariicom. CConsists of fMembers incDominica, Gbourse, bolBritish pub

Nevis, St. Lucia, St. Vincent, Suriname, and Trinidad and Tobago.They have set as a goal that there will be a single market, allowingfor the free movement of labor. Conspicuous by their absence are theCayman Islands and the British Virgin Islands, two major players ininternational banking, insurance, mutual funds, and finance. Veryloyal to the U.K. and the EU. In the "banana war" in early 1999, theytook the side of the EU, against the U.S., threatening to scuttle thespecial law enforcement treaties with the U.S. that allow the U.S. topursue those trafficking in drugs on the high seas who attempt.toelude by entering the territorial waters of the Caricom country.cash repatriation. A strategy used by multinational companies toget earnings from offshore subsidiaries to their parent companies atthe lowest tax cost possible.cash reporting. It is necessary to report to the Treasury Departmentas you are exiting the U.S. for a foreign country (even for avacation) and carrying more than $~o,ooo in cash or negotiableinstruments (such as travelers checks or money orders) per person.Failure to do so can result in high forfeitures.central bank. The central bank for the United States is the FederalReserve System. Internationally, a central bank is a bank under theadministration of the government intended to carry out the fiscalpolicy of the country.. certified public accountant (CPA). The offshore counterpart is thechartered accountant.CFC. See controlled foreign corporation.CID. The Criminal Investigation Division of the Internal RevenueService. Has approximately 3,000 employees, as well as the powerto secure search warrants, use the grand jury, and execute raids.Seeks to assist in the collection of approximately $195 billion of U.S.taxes that remain unpaid on an annual basis. Its primary mission isto investigate criminal violations of the Internal Revenue Code. Possessessophisticated financial computers and expertise; approximately25 percent of its talents and resources are used by othergovernment agencies as part of criminal investigations.

commercial annuity(as compared to theentity or person).committee of advisoand trust protector. Fpendence. If the relamittee can be constrcommittee of trust ptrust protector. Friendent. See trust proteccommon law. The eEmpire, as opposedobservance of precedcompany. A restrictcompany. Consider wlimited by shares, bycompany act or ordprovide for the inconational business coCaribbean tax havenInternational BusinesComptroller of the Coperations in the U.Sthat the Caribbean BU.S. using a bankingnonexistent entity.conditional SWIFT.system to transfer funperformance (meetin254 THE O f F S H O R Ecommon law trust.abusive trusts.

consol. An obligation that has no maturity date and pays perpetualinterest payments. Sometimes referred to as a perpetual bond or anannuity bond.constitutional trust. A scam trust program. See abusive trusts.constructive tvust. Created by implication where a party holds theassets of another on behalf of the beneficiaries. Courts may construethat the circumstances create a constructive trust.contingent beneficial interest. An interest given to a beneficiarythat is not fully vested by being discretionary, with powers restingin the trustee or some other designated party. In theory, since theyare inchoate interests, not truly gifting, they are unvested, not subjectto an attachment by the beneficiary's creditor, and not reportableas an IRS Form 709 gifting.controlled foreign corporation (c~c). A creature of U.S. tax law,but of concern to responsible offshore service providers. An offshorecompany that, because of ownership or voting control by U.S. persons,is treated by the IRS as a U.S. tax reporting entity. IRC $951 and$957 collectively define the CFC as one in which five or fewer U.S.persons own 50 percent or more of the total voting stock on any oneday in the tax reporting year.CPA. Certified public accountant.. creator. A person who creates a trust, also called a settlor (an offshoreterm) or grantor (an IRS term). Usage depends upon the country,citizenship or residency, and application.CTR. Currency transaction reports, imposed upon U.S. banks andother financial institutions.current account. An offshore personal savings or checking accountnot paying interest. Usually a short-term holding account awaitingsome other event.custodian. A bank, financial institution, or other entity that hasthe responsibility to manage or administer the custody or other safe-

keeping ofcharged forcustodian tname.debenture.but rather bture tradingdeclarationdiscretionaplete discreficiaries. Thbe a discretance to thevides flexibiby some tomemoranduDora, Projematch themsuch as thatDrug Enfoindices to ssuspected.dual criminacts commitcriminal orrequests forfrom anotheunder the duexcluded un256 T H EDM. Defensdonor. A tr

ectly to the regulation (including the imposition, calculation, andcollection) of taxes. However, in their defense, the Caymans provideserious support to the world's financial community for otheracts con-sidered fiscal crimes, such as narcotics trafficking, fraud,and money laundering.EC. The European Commission of the ~ uro~ean Union (EU), a fifteen-nationtrading group. The twenty commissioners of the EC areappointed by their respective EU member country and are a mostpowerful body. The principal economic block of the world's financialcommunity, they direct EU policies and day-to-day activities. Ina 1999 scandal, all twenty members of the EC resigned.ECB. The European Central Bank, the counterpart of the U.S. FederalReserve.Economic Recovery Act of 1981. See the Foreign Investor in RealProperty Tax Act of 1980 (FIRPTA). Quite important with respect toforeign persons owning U.S. real estate.ECU. European currency unit.EEC. European Economic Community, the predecessor to the EU.equity trust. May be marketed as part of a scam trust programunder many names. See abusive trusts.ESOT. An employee stock ownership trust, sometimes called anemployee stock ownership plan or ESOP. The ESOP Association,based in Washington, D.C., has material on the subject. Find it onthe Internet at www.nceo.org.estate. Interests in real andlor personal property that comprise yournet worth, both while living and after your death. (Many improperlythink of an estate as being merely the property of the deceased.)EU. European Union, represented by the European Commission(EC).European Central Bank (ECB). An independent organization thatdoes not report to any government agency.

258 T H E OFFSH,ORE H O H E Y B O O Kexchange controls. Government-imposed restrictions upon the freeconvertibility and transfer of currency to another country. Encouragesflight capital and created a currency black market.exempt company. Also an IBC; a corporation (also referred to as acompany) registered in a tax haven that has very limited abilities toengage in business within that country. It is usually given tax-exemptstatus and has very limited reporting requirements to the haven.ex parte. An application for an injunction filed and heard withoutnotice to the other side to protect assets.expatriate. To retain citizenship but sever other ties with yourmother country and become a resident and domicile of a foreigncountry.express trust. An expressly created trust (see constructive trust)evidenced with a sufficient written document a referred to as a trustdeed.family estate trust. May be marketed as a scam trust program. Seeabusive trusts.family holding trust. A trust that is created specifically to hold thefamily's assets consisting of real andlor personal property. May bemarketed as a scam trust program. See abusive trusts.family limited partnership (FLP). A limited partnership created forfamily estate planning and some asset protection. It is family controlledby the general partners. A highly appreciated asset is transferredinto the FLP to achieve a capital gains tax reduction. Usually,the parents are the general partners, holding a I to 2 percent interest.The other family members are the limited partners, holding thebalance of the interest in the partnership. Commonly referred to asa flip.family protective trust. A U.K. term. See also asset protection trust(APT), grantor trust, and nongrantor trust.FAPT. Foreign asset protection trust. See also asset protection trust(APT or FAPT).

flight capitallikely never retical stability, bbated by a lackthe cost of govgrows; it is fusion of personther confiscatoforeign. Mayused geographis characteristiForeign IvtveUnder FIRPTAexemption isowned by offsofficer handlinof the gross sFederal Reserernmental agefiduciary. Atance of the roFinCEN and FDepartment'sHoused in Waport buildingscentral financisuspicious actipiled there. Th(including stateDEA, FBI, IRS,FIRPTA. Foreifiscal offenseFLP. Family li

260 T H E OFCSHllRf HOHEY B O O KUnless withheld and submitted to the IRS, the party handling thesale transaction is personally liable for the taxes.foreign person. Any person, other than a U.S. citizen, who residesoutside the U.S. or is subject to the jurisdiction and laws of a countryother than the U.S. and referred to as a nonresident alien.foreign personal holding company (FPHC). Different than a controlledforeign corporation. Discuss with your CPA.foreign personal holding company (FPHC). An offshore foreignpersonal holding company subject to special IRS rules.FPT. Family protective trust. See also asset protection trust (APT orFAPT).fraudulent conveyance. A transfer of an asset that violates thefraudulent conveyance statutes of the affected jurisdictions.global. A term unique under U.S. parlance that means worldwide.GmbH. A form of a limited liability company, Gesellschaft mitbeschrankter Haftung, used in Austria, Germany, and ~witzerland.Considered a private company under German and Swiss law. Limitsliability of the owner/members to articles of association and thestated, agreed-upon capital contribution and any further requirementsimposed by the articles.grantor. An IRS concept-a person who creates (funds or settles) atrust or transfers real property to another entity. In a U.S. grantortrust, the grantor is the person responsible for U.S. income taxes onthe trust income. The grantor may have a reversionary interest in atrust, and may have the right to substitute assets and change beneficiaries.Grantor trusts are used to avoid probate or for U.S. assetprotection purposes and may also be used as a spendthrift trust.grantor trust. A trust created by a grantor and taxed to that grantor(settler). A creature of U.S. tax law only, not a term used elsewhere.A pass-through entity in which the grantor is taxed on the incomeof the offshore trust. Used only for asset protection.

I. Shareholders' liabguaranty.2. Persons contribupro-rata interestsbutions. The unithe funds put intharmful tax competitiocorporate tax breaks thahigh net worth (HNW$~OO,OOO in liquid assetbased on evaluation critholding company. A hoassets and worth from thcompanies, including froidends from equity holdhomestead exemption.tect one's residence froloss in a personal bankrhybrid annuity. An anment is pegged to a fixehybrid company. Avaicompany that is limitedreferred to by some as abenefits for U.S. personsIBC. A corporation. Seecompany.IBRD. International Ba(Also known as the Wo1%. International finan

APPENDIX A 263international business company (IBC). A corporation, in realityan exempt company, formed (incorporated) under a typical companyact of a tax haven but not authorized to do business withinthat country of incorporation; intended to be used for global operations.Owned by member(s)/shareholder(s). Has the usual corporateattributes.International Chamber of Commerce (IcC). Headquarted inFrance, an international body governing international financialtransactions.International Deposit Insurance Covporation (IDIC). In 1998 and1999 claimed to be an insurance company insuring bank accounts,when in fact it was not licensed to conduct the business of insuranceanywhere. Later changed its name to International Deposit IndemnityCorporation.international financial and banking center (IFC). A jurisdictionor country identified as being a tax haven. Usually has a favorablepolicy by the local government to attract foreign funds. Note the differencebetween an IFC and an offshore financial center: The IFCtries to attract business to its jurisdiction, while an OFC just seeksfees and other revenue.International Trade and Investment Companies ([TIC). The onlycompanies authorized by the Chinese government to borrow fundsfrom foreign sources for investment in China or for lending purposes.More than 250 exist; the most familiar, due to financial failure,is the Chinese central government's own CITIC (China InternationalTrust and Investment Corporation).international trust. A Cook Islands term for a special type of anasset protection trust. Governed by the laws of the Cook Islands.INTERPOL. International Criminal Police Organization. The networkof multinational law enforcement authorities established to exchangeinformation regarding money laundering and other criminal activities.More than 125 member nations.IOFC. International offshore and financial center.

264 THE OFFSHORE M O I E Y BOOKIRC. The U.S. Internal Revenue Code, or the tax code, or tax laws.IRS. The U.S. Internal Revenue Service, an agency'of the TreasuryDepartment. Its charter is to administer the Internal Revenue Code.With a budget of more than $7.8 billion per year, it is the fourthlargest "company" in the U.S.joint annuitant. The survivor who continues receiving a stream ofpayments upon the death of the other annuitant.jurisdiction. Used in this book as a generic name for a sovereigncountry in which their own laws apply. Synonymous with tax havenor international financial center.Kuiu Tblingit Nation. A purported Native American Indian tribethat is used as a backdrop by scam artists to concoct phony banklicenses.laundering (money laundering). The act of converting dirty moneyto clean money by multiple cleansing transactions, including flowingthrough legitimate banks and businesses. To support an accusationof money laundering, there must be a direct nexus betweenspecified unlawful activities and the movement of money. Commonlycharged in criminal matters in the U.S. where money has been movedwithout the payment of due taxes. Know-your-customer requirementsare gradually being imposed upon the banking system,intended to stem the flow of dirty money into legitimate bankingchannels.layered trusts. Trusts placed in series, where the beneficiary ofthe first trust is the second trust, and so forth; used for privacy.Where used with abusive trusts to avoid U.S. taxation, it is usuallytax evasion.layering. May bk achieved with numerous combinations of entities.For example, IOO percent of the shares of an IBC being owned by thefirst trust, which has as its sole beneficiary a second trust. May beperceived as an abusive trust.LC. Another abbreviation for limited liability company (LLC).

letter (memoratrustee, usually fover the trustee.fully drafted totlor, in the casetrustee cannot bto a suspicion thassets. Sometimlimited compana resident of thewith a simpler blimited liabilityers and a managelect to be taxedically, it combineand a partnershthrough of taxpartnership, opeliability as proviliving trust. Reto expedite saleprotection.LLC. Limited lialimited liabilitythe general partwas a corporatiUnder the LLLP,limited personallimited liabilityand used for prattorneys.limited liabilityto calls or litiga

266 THE O f F S H O R E HONEY BOOKLoro-Nostro account. An account or correspondent account establishedbetween two banks paying at the Interbank rate.Ltd. Limited.mark. Abbreviation for German currency, the deutsche mark.Mauera injunction. A court injunction preventing a trustee fromtransferring trust assets pending the outcome of a lawsuit.Melchizedek, Dominion of. This is a fictitious tax haven and scamoperation.member. An equity owner of a limited liability company (LLC), limitedliability partnership (LLP), limited liability limited partnership(LLLP), or a shareholder in an IBC. The counterpart of a shareholderin a corporation or a partner in a partnership.memorandum. The memorandum of association of an IBC, equivalentto articles of incorporation.migration clause, automatic. Language contained in an APT tocause the trust to automatically migrate or flee to another jurisdictionupon a condition of duress. Alternatively, the trustee may begranted such powers and cause the trust to migrate-this would notbe automatic migration. The migration language affects the statusof an APT and determines whether it is a domestic or foreign trustunder the IRC. Automatic migration provisions may not pass thecourt test and the control test. Failure to pass either test makes adomestic APT become a foreign trust.MLAT. Mutual Legal Assistance Treaty.money laundering. See laundering.Mutual Legal Assistance Treaty (MLAT). An agreement among theU.S. and many Caribbean countries for the exchange of financialand banking information for the enforcement of criminal laws.nongrantor trust. Usually, an APT created by a nonresident alienon behalf of the U.S. beneficiaries.

Royal Canadian Mounted Police with local police forces, customs,and the Crown Prosecutor's office.protector. See trust protector. Occasionally used for foundations, asin a foundation protector.PT. An acronym for either perpetual tourist or perpetual traveler,denoting persons seeking to become "stateless" and therefore free oftax burdens (at least so they claim). The designation of PT carrieswith it some negative connotations in that it is usually associatedwith tax protest or antiestablishment groups seeking to evade taxes.public limited company (PLC). A U.K. public limited company, asopposed to the U.K. private limited company.pure equity trust. A special type of irrevocable trust marketed bypromoters. The trust assets are obtained by an "exchange" of a certificateof beneficial interest in return for the assets, as opposed totraditional means, such as by gifting. Provides no tax benefits.pure trust. A contractual trust, as opposed to a statutory trust, createdunder common law. It has a minimum of three parties-thecreator or settlor (never grantor), the trustee, and the beneficiaryandeach is a separate entity. A pure trust is claimed to be a lawful,irrevocable, separate legal entity; it provides no tax benefits.purpose trust. An offshore trust providing a mission or charterand leaving to the discretionary offshore trustee the power as todistributions.RA. Reluctant American. Caution: means resident alien in other literature,but not in this book.recandle. To move and reactivate a trust in another tax haven.redomiciliation. The transferring of a trust or an IBC to anotherwilling jurisdiction for adoption.register. The register of international business companies andexempt companies maintained by the registrar of a tax haven.registrar. The registrar of companies, a gob : body controllingthe formation and renewal of companies created undcr a juris-.

voting and nonvoting, unnumbered, common, preferred, or redeemable.Different classes of stock may be issued as well as no-par valueshares. Limitations of the shares are in the memorandum or in thearticles of association of the IBC.side letter. Letter of wishes.SIPC. The Securities Industry Protection Corporation. Provides upto $~OO,OOO insurance protection for your U.S. stock brokerageaccount.situs (site). The domicile or controlling jurisdiction of a trust. It isthe principal jurisdiction in a conflict-of-laws situation. It may bechanged to another jurisdiction. The orphan trust is rekindled inanother jurisdiction. Movement may be automatic by language containedin the trust deed.socie'te' anonyme (sA). A limited liability corporation establishedunder French law. Requires a minimum of seven shareholders. In Spanish-speakingcountries, it is known as the sociedad anonima. Animportant characteristic of both is that the liability of the shareholderis limited up to the amount of one's respective capital contribution.Sparbuch. An Austrian numbered savings account, now .unavailabledue to pressures from the EU.special custodian. An appointee of the trustee in an APT.special investment advisor. An appointee of the trustee in an APT.spendthrift trust. A trust intended to protect the beneficiary fromhis or her actions, shielding the assets from being wasted by the beneficiaryand protecting the assets from the creditors or claimants ofthe beneficiary.statute of limitations. In the context of a trust, the deadline afterwhich a party claiming to be injured by the settlor of an APT shouldno longer file an action to recover damages.statutory. That which is fixed by statutes or codes (as opposed tothe common-law body of cases, generating what is referred to as"case law").

272 T H E O F F S H O R i HOHEY B O O Ksteureroase. German phrase for a tax haven.Stiftung. A Liechtenstein form of private foundation. Created bycivil statute, it is a model for foundation structures worldwide.Although written for civil-law jurisdictions, it has been adapted wellfor the English common-law jurisdictions.sub-part F income. Under IRC $957, any U.S. persons who own 10percent or more of a controlled foreign corporation (CFC) reporttheir proportional share of certain corporate income on their incometax returns. Taxes are due even where the CFC fails to distribute theincome to the shareholder. There are exceptions for eligible c ~cs forthe income of banks, security dealers, and financing. Sub-part Fincome includes any investment income or gains and some operatingincome derived from transactions with U.S. shareholders ofrelated companies.SWIFT. Society for Worldwide Interbank Financial Telecommunications.A global wire transfer system.Swiss Postfinance. Operates more than 3,000 "ordinary postoffices" within Switzerland that also process financial transactions,similar to a bank.tax-avoidance transaction. A lawful method of avoiding taxes, ascontrasted with tax evasion, which is a felony in the United States.Tax experts almost universally agree that this term is impossible todefine.tax haven. An international banking and financial center providingprivacy, asset protection, and the expectation of some tax benefits.tax regimen. The local tax treatment of income, foreign sourceincome, nonresidents, and special tax concessions, which, whencombined, form complex issues. The local tax rate is not the exclusivefactor. One must consider the ramifications of dual-tax treatiesbetween or among the countries involved ("treaty shopping") in thetotal analysis.TCI. The Turks and Caicos Islands.

trading program. The bankavoided, a scam.tranche. Part of a bond seriesIn the U.S., for example, " . . . uof shares held in reserve. . . ."transmogrifying. The conversassets. Generally done as part otrue settlor. Used in a trust whsettlor, and his or her identity ipare with the grantor trust. Thitrust. An entity created for theing assets for the benefit of a tha contract affecting three partiebeneficiary. A trust protector istrust, the settlor transfers assetof the beneficiaries. The trust mtive) or irrevocable (called flexitrustee is granted very broad pocipal, interest, and income to thtrust deed. An asset protectiontrustee. A person independen. responsibility to the beneficiarias a reasonable, prudent businecumstances, and who administwritten wishes of the settlor. Thtor when required in the best inting requirements, defined at thewhom, and how to respond tinvestment strategies; fees (flat athe trust estate); anticipated futuconsulting services; seminars andon. The trustee may have full dto selected beneficiaries. Ideallytrustee to resign, even without c

274 THE O f f S H O R E HONEY B O O Ktrust indenture. A trust instrument, such as a trust deed, creatingan offshore trust.tmst protector. A person appointed by the settlor to oversee thetrust on behalf of the beneficiaries for additional security and thepeace of mind of the settlor. In many jurisdictions, local trust lawsdefine the concept of the trust protector. Note that the trust protector'srole is not necessarily clear in all jurisdictions, and trust actsare being amended to remedy this problem.trust settlemerzt document. Trust deed.typo-piracy. The practice of establishing a domain name virtuallyindistinguishable from another domain, for the purpose of attractingvisitors who incorrectly enter the name of the website they wishto visit. This practice is sometimes illegal.UBO. Unincorporated business organization. Avoid using thisstructure.Uniform Partnership Act (UPA). One of the generic bodies of lawsadopted by some states or used as a baseline for other states as a recommendedmodel of laws.uO. Unincorporated organization (same as UBO). Avoid using thisstructure.upstreaming. The process of retaining earnings offshore throughthe billing process or transfer pricing strategies. Prenegotiated transferpricing agreements with the IRS are to be encouraged here.URL. Universal resource locator on the World Wide Web. A combinationof letters, numbers, and punctuation that comprise an addressfor a website.U.S.C. U.S. Code,(of statutes).U.S. person. A term unique to the IRC. Any person or legal entity,including a foreign citizen, who resides in the United States or issubject to the jurisdiction of the U.S. tax system (regardless of wherethe person is situated worldwide).

PublicationsDISCLAIMER: 1 HAVE no financial or other interest in thpublications, except where noted. Note that when comwebsites were valid, but sites do change and close.Asset ProtectionThe Jacobs Report on Asset Protection StrategiesVernon K. Jacobs, CPA, editor.P.O. Box 8137Prairie Village; KS 66208Phone: (913) 362-9667E-mail: osj@rpifs.comMark Nestmann, editorAsset Protection International, publishersToronto, CanadaE-mail: assetpro@nestmann.comWebsite: www.nestmann.comPhone: (416) 352-5086(Author's note: I provide consulting advice to this p

BFor further internationawww.killen.comlkwr/iI have bought and read virand offshore, keeping the bsuch classics as a rare first edHavens, written in 1978, ibelief, foreign tax havens stpearls of wisdom have not cing list for you. This list excpose is to characterize tax hthe reluctant American andwritten to glamorize the autUnfortunately, since thiare partially obsolete whenally excludes those books tminor tax havens that one hion of Melchizedek, Vanuations for chicanery. The folor author, if your favoriteupdates on this list, go to'~book~tore.~'278 THE OFFSHORE MOHEYSpecial Reportswww.jim-bennett.comFor a listing of almost everwww.qualisteam.com/To ask a question ab@nker.com

Bulletproof Offshore Asset Protection by Jim Bennett. Strictly forthe newbie, a fast one-hour read. Lacks depth on the topic.The Computer Privacy Handbook by Andre Bacard. The standardhandbook for the industry.Due Diligence for the Financial Professional by L. Burke Files,Thomas R. Nesbitt, and Joseph Agiato. Assists you in practicingdue diligence before getting involved.Hide Your Assets and Disappear by Edmund J. Pankau. For futureexpatriates. On the New York Times bestseller nonfiction booklistfor March 1999.International Tax Summaries by Coopers & Lybrand. Covers differentkinds of taxes in about 1x0 different countries. Publishedby John Wiley & Sons.International Trust Laws and Analysis by Walter H. Diamond. Allyou could ever need to evaluate, establish, and maintain offshoretrusts in any jurisdiction. For the professional.The Offshore Advantage by Terry L. Neal. A must-read if you areinterested in Nevis.Tax Havens of the World by Diamond and Diamond. Three-volumeset, exploring thirty characteristics in detail for sixty-five taxhavens. Published by Matthew Bender & Company.Tax Havens of the World by Thomas P. Azzara. Covers over twentytax havens; very heavily into taxes and the IRC for those needingmore of this type of in-depth information. Buy the latest(seventh) edition.Tax Haven Roadmap by Richard Czerlau. 1998 revised edition, publishedin Canada.Guatemala Livinq and Retirement ReursUter

280 T H E O F F S H O R E HONEY B O O KHotels, Trauel Illerts, and General TrauelHideaway Report. If you love to travel and stay first class, or just tovicariously enjoy the good life, subscribe to Andrew Harper's HideawayReport, "a connoisseur's worldwide guide to peaceful andunspoiled placesm-so they claim, and with appropriate justification.Write them at:P.O. Box 300Whitefish, MT 59937Caribbean Travel & Life. Available at your newsstand or by subscription.A must-read for frequent travelers to the Caribbean.Travel alerts by the U.S. State Department. Available 7 days aweek, 24 hours a day.Phone: (202) 647-5225Fax: (202) 647-3000Website: http://travel.state.govLanguage TranslatorsBabelfish is a free, five-language translation service that translateswords, phrases, and websites. The ten alternatives are translationsfrom:English to French or French to EnglishEnglish to Spanish or Spanish to EnglishEnglish to German or German to EnglishEnglish to Italian or Italian to EnglishEnglish .to P.ortuguese or Portuguese to EnglishThe translation is far from being precise, but it does give you asignificant understanding and sense of the foreign text. Go toAccent Translation Software

Legal InfOffsHague Academy of Internationwww. hagueacademy.nlAmerican Society of Comparawww.comparativelaw.orgInternet Offshore Entrepreneuis an offshore information newWebsite: www.goldhaven.comE-mail: info@goldhaven.comOffshore Finance Canada.Canada's leading magazine oninvestment. Highly recommendfinancial community.Phone: (514) 939-2800Fax: (514) 939-2881E-mail: island@aei.caWebsite: www.offshorefinancOffshore Finance U.S.A. P(I am on the editorial advisoryPhone: (514) 939-2800Fax: (514) 939-2881E-mail: island@aei.caWebsite: www.offshorefinancOffshore News from the Bing and knowledgeable writerequest a subscription:P.O. Box N-1201Nassau, BahamasPhone: (242) 356-2036Fax: (242) 356-2037

282 T H E O f f S H O R E HOHEY B O O KE-mail: itiItd@itiltd.comWebsite: www.itiltd.comFree International Asset Protection/Privacy CatalogueMark Nestmann, authorE-mail: pbs@top.monad.netWebsite: www.nestmann.comScope International Limited. An overly prolific source of materialson going offshore. Some strategies are too tax aggressive forU.S. persons, and some materials are quite dated. Check the publicationdate before buying. Read with caution.230 Peppard RoadEmrner Green, Reading, Berkshire RGq 8UAGreat BritianThe Sovereign Society. Extensive offshore reading materials,newsletter, and books. Prestigious board of directors including theauthors of The Sovereign Society and bestseller author John A. Pugsley.For the expatriate and others.P.O. Box 2697London WIA 3TR U.K.Phone: 44 171 447 4055Fax: 44 171 447 4041Offshore lnuestingThe Lorne House Report from the Isle of Man. Excellent freemonthly newsletter on worldwide investing.E-mail: general@lorne-house.comPriuacyComputer Professionals for Social Responsibilitywww.cpsr.org

ISPI Clips is a free E-mail service from the Inof Privacy Issues (ISPI). (I am on the editorial adpublication.) To receive ISPI Clips on a regular bmost days), send the following message, withoutenter [your name] into the ISPI Clips list: [your EThe Institute for the Study of Privacy Issuesutor-funded organization based in Victoria, Broperates on a not-for-profit basis, accepts no gand takes a global perspective. They gratefullytions. For a contribution form with postal instrthe following message: "ISPI Contribution Formispiqprivacy@ama-gi.comPhone: (250) 383-1877The Financial Privacy Report, Mike Ketche(twelve issues), $144.p.0. BOX I277Burnsville, MN 55337Phone: (612) 895-8757Scam and Fraud fllertsAbusive trusts, constitutional trusts, and so on:Offshore Alert, "The Pen Is Mightier Thanand the Web, $~yj.oo/year, monthly: OffshoreResearch, Inc. An investigative newsletter covecial services in the Bermuda-Caribbean region.123 S. E. 3rd Avenue, Box 173Miami, FL 33131Phone: (305) 372-6267Fax: (305) 372-8724

284 T H E O F f S H O l f M O H E Y B O O KE-mail: info@offshorebusiness.comWebsite: www.offshorebusiness.comPrime bank note, roll program, bank debentureThe Adkisson Advisorhttp://~~~.quatlo~~.comNigerian offers for hidden wealth participationhttp://home.rica.net/alphae/qlgcoalTaxesOffshore Tax Strategies by J. Richard Duke, Esq.Jacobs, CPAInternational tax analysts mailing list. To subscrto majordomo@lists.tax.org with the message "sutional" (without the quotes).Tax and international links by Vernon K. JacobE-mail: osj@rpifs.comWebsite: www.rpifs.com/vkjcpaTelecommunicationsTelef6nica de Argentina's on-line guide, white andwww.paginas-d6radas.com.arUlorld TradeLatin Trade. Available at your newstand or by subscread for those doing business with Latin America oelers to that region of the world.

Asset Protection and Offshore SeruProuiders and OrganizationsTHE FOLLOWING OFFSHORE service providers are of verity, or the individuals maintaining the sites are thoseknow or know to have quaJity reputations. I may have hmay have a current business or personal relationshipdirect or indirect. This is a courtesy top-quality list provwithout warranty.www. kpmg.comSeruice ProuidersAccountingThe Adkisson Analysis. One of the best informationAlso see their asset protection information.American Citizens Abroad (ACA) website. Has mresources and news items. ACA is a nonprofit associatioto serving and defending the interests of individual Uworldwide." It's headquartered in Geneva, Switzerlandsite includes an assortment of news items, an extensive

www.rpifs.comloapBaseSt. Helier, JerseyPhone: 44-153 -460Website: ~o~~~~286 THE OFFSHORElinks to related websiand medical insurancFor the wealthy expawww.ogara.comhttp://aprotect.cohttp://asset-protecExcellent asset protewww.protectyou.cwww.webcom.comExpert international

E-mail: richard@assetlaw.comWebsite: www.assetlaw.comEngel Reiman E Lockurood p.c.Very professional and informative website.www.asset-protection.netEmbassy & Consultant Ulorldluide Directory for 1111 NationsHere's an outstanding resource for anyone looking for any embassyin the world, indexed by host country and by guest country-includingconsulates and offices in multiple cities of the host country. It isthe product of Roger Gallo, developer of the www.escapeartist.comwebsite.www.embpage.orgEmbassy Uleb-International Ulebsiteswww.escapeartist.comEscape BrtisiEuroBanc LimitedSt. Kitts Class A private and merchant bank, mutual fund management,insurance company formation, trust services, credit cards.Graham Thompson & Co.Gilbert A. Ward, Attorney at LawShirley St. & Victoria Ave.P.O. Box N-272Nassau, New Providence, Bahamas

288 THE OFFSHORE HOHEY BOOKPhone: (242) 322-4130Fax: (242) 328-0386International SecondmentPopular KPMG booklets provide practical tax and human resourceinformation regarding transfers to and from twenty-nine countries.International Trade & Investments Limited. NassauRoy Bouchier can open doors of opportunity for you in the Bahamas.E-mail: itiltd@itiltd.comWebsite: www.itiltd.comUernon Jacobs, CPR. Research Press. Inc.E-mail: osi@rpifs.comWebsite: www.rpifs.com/vkjcpaDavid S. Lesperance, Barrister and SolicitorA well-respected Ontario, Canada authority on renunciation of U.S.citizenship, worldwide second passports, and expatriation.www.llc-usa.comPhone: (402) 476-3604www.moneylaundering.comLimited Liability Company ResourcesMarket flduisors. Inc. JournalMoney -Laundering Alert

APPEHMoney-Laundering Compliance Ulebsite Indexfreespace.virgin.net/silkscreenwww.nestrnann.comHestmann: Offshore Bsset Protectionwww-offshore-net.comOffshore E-mail LetterOffice of the PresidentSt. Helier, JerseyBritish IslesPhone: 44-153 -400-0900Fax: 44-153-460-7876The Offshore InstituteJersey:baseltrustjersey@compuserve.comIsle of Man:rneridian@mcb.netP.O. Box 608039Orlando, FLpcalby@ix.netcom.comOrlando Nail DropThe Ouerseas Oversight Group U.S.R.LLCProviding APT formation and trust protector services. Clizing St. Vincent for their trusts and the Isle of Man fprotector services.E-mail: oversight~@aol.comWebsite: www.oversightgroup.com

Request a sample ofE-mail: marketing@Website: www.trusNewsletter from thevices Limited (now SE-mail: dostrave~@lWebsite: http://trav290 T H E O F F S H O R EE-mail: mail@skyWebsite: www.skyhttp://www.trustMcLean McNally, inmclean@caribsurfUucs@bahamas.net.U.S.Ulwww.offshore-wh

Internet ResourcesDisclaimer. The following list of Internet websites and E-mailaddresses for various tax havens is provided without any warranty,only to assist you in your international financial research. This listingprovides only those E-mail addresses or websites known by me.Those marked with an asterisk do not meet my subjective standardsas a commentator and are provided merely as a curiosity to thereader. Websites were correct when compiled, but are dynamic andmove, close, or change frequently.www.servissim.comwww.aibs.com.aiBndorraRnguilla Business SeruicesRntipuaAntigua Overseas Bankaob@candw.agSwiss American BankPhone: (268) 480-2240E-mail: hcrn@law.comWebsite: www.hcmlaw.comE-mail: imt@cms-saWebsite: www.cms-sa.comauafincen@mail.setarnet.awcentrust@setarnet.awBruba

292 THE O F ~ S H O R NOHiY ~BOOKwww.nestmann.comAsset Protection International-Mark HestmannRsset Protection NewsThe newsletter is available online atwww.protectyou.comAsset Protection and Offshore E-mail ForumAvailable for those who are interested in asset protecassortment of offshore topics. Participation is openFor more information about the forum see the iristrCorporate formation, low feesiyww.ucservices.com(817) 354-4888Bankswww.escapeartist.com/offshore~/banks.htmwww.saninvest.comBarbadosE-mail: aItabank@caribsurf.comWebsite: www.altabank.com

Barbados lnvestrnent and DeE-mail: barinvest@interlog.coWebsite: www.bidc.comE-mail: hcm@law.comWebsite: www.hcmlaw.comE-mail: bblbcsl@btl.netWebsite: www.bhiofs.comCorporate formation, low feewww.ucservices.comPhone: (800) 551-2141 or (81Belize First magazineBermuda statistical informatithe government, employment,an easy-to-read format.E-mail: stdlife@ibl.bmWebsire: www.standard1ife.caBermuda Stock Exchange (BE-mail: jmacphee@bsx.com

Website: www.bsx.comInsurance Serviceswrsl@ibl.bm (William R. Storie & Co., Ltd.)www. bvi.orgdanpenco@caribsurf.comBritish Virgin IslandsE-mail: admin@owomfg.comWebsite: www.owomfg.comCentral Intelligence Rgency [CIA1Cook IslandsAsiaciti in the Cook Islands is available as an institutional cof an APT.E-mail: asiacitiG3intnet.m~Website: www.asiaciti.comCosta RicaCredit Card Program by lnfiniti Global Rnness.E-mail: sales@axxess-internationaI.comWebsite: www.axxess-international.com

CubaInternational Trade & Investments, Ltd., BahE-mail: itiltd@itiltd.comWebsite: www.itiltd.comPhone: (31) 10-436944CuracaoCurrency Exchangewww.wiso.gwdg.de/ifbg/currency.htmlCurrency Rates-Bloomberg On-lwww.bloomberg.com/stlmarkets/fxc.htmlCurrency Conuerter G financial ForCyprusE-mail: consult@cosrnoserve.comWebsite: www.cosmoserve.comCyprus Tourism Organizationwww.cyprustourism.orgDefense Intelligence Agency (DIA)E-mail: ims@tod.dmDominicaE-mail: investments@cwdom.dm

296 THE OFWebsite: wE-mail: irnWebsite: wLegal Servburtong8tE-mail: lawWebsite: wDominicandc@cwdinf08divecwww.privaFor the eleventhe Euro. Thethe calculatosaved. In addstudz.tuwwww.dive

of the Eura coins and banknotes. Installation is available in four languages:German, English, French, and Italian. Go toClick on "Business" for their foreign exchange rates.E-mail: falc@falc.comWebsite: www.falc.comGrenadaE-mail: imt@cms-saxomWebsite: www.cms-sa.comHong KongE-mail: aall@asiaonline.netWebsite: www.aallandzyleman.comE-mail: asiaciti@asiaciti.com.hkWebsite: www.asiaciti.comInternal Aeuenue SeruiceIncludes Actions on Decisions (AOD), Service Center Advice (TheOffice of Chief Counsel provides legal advice to IRS service centersand related IRS functions with respect to their tax administrationresponsibilities), Chief Counsel (cc) Notices, ADP : ; Infor-

298 THI OFFSHORE RONtY B O O Kmation (the public version), IRS Written DeterminRevenue Manual (IRM) Online, and more:For tax protestor laws:IrelandE-mail: info@offshore-services.ieWebsite: www.iol.ie/offshoreIsle of ManE-mail: general@lorne-house.comWebsite: www.lorne-house.comE-mail: ilscorp@intlawsys.comWebsite: www.intlawsys.comcharles.cain@skyefid.co.imWebsite: www.skefid.co.im/skyeE-mail: int-serv-dev@gov.imWebsite: www.gov.imlint-serv-devJerseyE-mail: ems@contractorworld.com oralan@contractorworld.comwww.bishkek.kgKyrgyzstan. Eity of BishekLiechtenstein [and Sluissl Bankswww.swconsuIt.ch/chbanks/index.html

E-mail: fiducia@ekvWebsite: www.lol.li/fE-mail: mobaa@bowWebsite: www.mobaE-mail: asiaciti@intWebsite: www.asiacLuxlegal, Law of Lcially business law andmmcl@mail.telepacwww.melchizedek.cE-mail: vonernst@awww.kbl.lu

300 I H E OFFSHORE YOHEY BOOKE-mail: info@eurobancltd.comPhone: (boo) 541-1441NeuisE-mail: nevamtru@caribsurf.comWebsite: www.offshoreagents.comE-mail: nevfin@caribsurf.comWebsite: www.nevisweb.kn/nevcomm.htmlPhone: (869) 469-1469Fax: (869) 469-0039E-mail: imt@cms-sa.comWebsite: www.cms-sa.comHiue*PriuatizationE-mail: marketing@mail.bcr.roWebsite: www.bcr.roRomaniaE-mail: asiaciti@intnet.muWebsite: wwiY.asiaciti.comSamoaSeychellesE-mail: ical@seychelles.netWebsite: www.seychelles.netlical

E-mail: siba@seycheWebsite: www.siba.nE-mail: infor@intmWebsite: www.intmE-mail: info@eurobPhone: (800) 541-1(244 354-2095E-mail: skanfsd@caWebsite: www.fsd.gE-mail: imt@cms-sWebsite: www.cmsE-mail: mslaw@tcWebsite: www.msl

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Abusive trust, 247Accbmmodation address, 247Accounts receivable factorer, 57Actionable fraud, 89-90Actuary, 247-48Adverse trustee, 157, 248Advocate, 248A.G., 248Agent, 82-83, 248Alaska as tax haven, 220-21Alderney as tax haven, 221All crimes anti-launderinglegislation, 248. Alternate director, 248American Depository Receipt(ADR), 248-49Anderson case, 93-94Andorragetting information on, 291as tax haven, 173, 221Anguilla, 28, 41, 99, 108as tax haven, 185, 221-22Anguilla Business Servicesgetting information on, 291Annual meeting, 249Annuitant, 52, 249Annuities, 11, 52, 123-27, 249deferred, 123growth of, 123last-to-die, 125popularity of, 123-24private, 126-27Swiss, 124-26and tax deferred, 123, 124taxes on proceeds, 173-74terms of, 125types of, 123Annuity certain contract, 123Anstalt. A Liechtenstein entity,249Anti-deferral rules, 249Antigua, 26, 108getting information on, 291stability of overseas territory,29as tax haven, 222AP. See Asset protectionAPT. See Asset protection trust

304 T H E O f f S H O R E I O H E Y B O O KArticles of association, 249-50Aruba, 108getting information on, 291as tax haven, 222-23Asset management services, 119Asset manager, 82, 250role of, 13Asset protection, 250publications on, 277-78Asset Protection and OffshoreE-mail Forumgetting information on, 292Asset protection (AP), XV, 216Asset protection (AP) plan,bankruptcy with, 160-63Asset Protection International-Mark Nestmanngetting information on, 292Asset Protection NewsGesellschaft mit beschrankterHaftung, 260Guatemala Living andRetirement Newsletter,279Inter vivos trust, 50, 74Market Advisors, Inc. Journal,109The New Role of IntellectualProperty in CommercialTransactions, 57Offshore Alert newsletter, xviiStiftung, 158, 272, 235The Ugly American, xivAsset protection trust (APT), 2,11, SO, 250costs, 43, 83-85need for, 77-80parties to, 80-83Asset stripping, 250Assets, 250transferring, 42-43Australia as candidate for capitalflight, 27Austria as tax haven, 223Authorized capital, 250Automatic migration, 94-95Babelfish, 280Badges of fraud, 90, 98, 250Bahamas, 31, 32, 36,407 58, 87,100, 103, 108as company limited byguaranty in, 130getting information on, 292Governing Law Act of, 40international businesscompanies in, 64, 68-69override provisions of, 87as tax haven, 185, 223Bahrain as tax haven, 224Bank directory, 278Bank of Credit & CommerceInternational, 250-51Bank of International Settlements,251Bank Savings Protection Institute,20Bank shares, 108Bankinggeneral rules of, 111-12local, 55private, 118-22Banking services, 35, 56Banking system

Swiss, 105-7breaches of secrecy, 106-7historical secrecy in,105-6Bankruptcywith asset preservation plan,160-63insolvency test, 77Banksaffiliate, 111Class A, 119Class B, 119getting information on, 292offshore, xxviiimproving image of, 104-5industry trends, 101-5personal private, 119-21private investment, 11Barbados, 99, IOOgetting information on, 292-93as tax haven, 185, 224Barber, Hoyt, xxviiiBarbudagetting information on, 293. as tax haven, 222Basel Committee on BankingSupervision, 251Basel Trust Corporation, 57Basic business trust, 155Basic offshore entities, 46-53Basic trust, 71Belgium as tax haven, 224Belize, 108getting information on, 293override provisions of, 87as tax haven, 225Bendelow, E. L., 57BeBeBeBlBoBoBoBoBoBoBoBrBBrBrBrBrBBBBBBB

306 T H E O F F S H O R [ H O H I Y B O O KCaicos Islandsgetting information on, 301as tax haven, 185Calling card, 187-88Camouflage passports, 133-34Campione as tax haven, 227Canada as candidate for capitalflight, 27Canadian Deposit InsuranceCorporation (CDIC), 20. Seealso Public limited companyCanary Islands, 31as tax haven, 227Capital. See Public limitedcompanyauthorized, 250flight of, xxvi, 26-28, 104, 259prime candidate for,26-28Capital controls, 103-4Capital gains taxes, 50Captive insurance company, 11,193-99costs, formation fees, andcapitalization, 198global insurance resource onthe Web, 199statutory requirements,198-99Captive of associated companies,I94Caribbean, 31, 35, 108Bank of Commerce, Ltd. in,I20Caribbean-style company act, 5sCaricom, 47, 55, 252-53Cash repatriation, 253Cash reporting, 253Cayman Islands, xxii, 31, 35, 36,41, 58, 87, 99, 100, 102, 108insurance laws in, 194-95override provisions of, 87stability of overseas territory,29as tax haven, 185, 227-28Cedcom, 43Cell captive, 194Central bank, 253Central Intelligence Agency (CIA)getting information on, 294Certificate of beneficial interest(csr), 146Certified public accountant,253Channel Islands, 58, 75banks in, 118Class A, 119model, 47, 55as tax haven, 185, 228-29Charitable trust, 156Chavez, Hugo, 27Child, providing for, in high-riskprofession, 157Choice of law, efficacy of, 97Chop block account, 114, 115Citizenships, 133acquisition of, 34Class A bank, 119Class B bank, 119economic, 138Cloud of fraudulentconveyances, 89Columbus, 108Commercial annuity, 254

Commercial trustee, 72Committee of advisors, 82,254Committee of trust protectors,254Common law, 254Common law trust, 11, 254Communications, 29-31quality of, 60Company, 254Company act, 47, 55, 254Comptroller of the Currency,254Computer files, 190-91Condition of duress sampleletter, 92Conditional SWIFT, 254Conflict of law principles, 96Consent form, 113Consol, 255Constitutional trust, 255 'Constructive trust, 255Contemporary three-tierstructure, 146, 148-49. Contingent beneficial interest,25sContract hybrid company, 130Controlled foreign corporation(CFC), 47, 175, 253, 255Cook Islands, xv, 28, 29, 34, 40,87, 93getting information on, 294override provisions of, 87as tax haven, 229-30Costa Rica, 29getting information on, 294as tax haven, 230Costs, 15-1asset proCreator, 7Credit CarGlobagetting iCredit caroffshoreCredit repCreditors,Criminal Iof the In25 3Crown jewCubagetting ias tax hCuba clauCuraqao, g295Currency,regulatiocontCurrencyForecagetting iCurrencygetting iCurrencyOn-LiCurrencyCurrent aCustodianCustodianCustoms,Cybernatitax ha

308 T H f O f f S H O R E H OCyprus, 87as company limited byguaranty in, 130getting information onas tax haven, 173, 230-Davidson, James Dale, xDebenture, 256Debit cards, 110-11, 118offshore, 110-11Declaration of trust, 151Deed of trust, 52Defense Intelligence AgeDeferred annuity, 123Delaware as tax haven, 2Denmark as tax haven, 2Discretionary flight lang94-95Discretionary trust, 82,Divorce, 22Doctrine of Euro-compatDomestic (onshore) trustDomicile, 132-33of choice, 132of origin, 132Dominicagetting information onas tax haven, 231-32Donor, 256Drug Enforcement AgencDrug trafficking, 111Dual criminality test, 25Dublin, Ireland, as tax h232Due diligence, 14Duke, J. Richard, 149Duress provisions, 91

Exit strategy, implementing,135-36Expatriates, 258getting information on, 296Express exchange controls, 21Express trust, 258Facsimile (fax) communications,30Fairness of law enforcement, 107Family estate trust, 258Family foundation, 235Family holding trust, 258Family limited partnership, xxvii,140-44, 258checklist, 143-44weakness of, as asset protection(AP) tool, 141-43Family protective trust, xxvii, 11,258Family residence trust, 155-56Family settlement trust, 11Family trust cases, 151- Federal Banking Commission, 106. Federal Deposit InsuranceCorporation (FDIC), 19Federal Law on Banks andSavings Banks, 106Federal Reserve Bank's wiretransfer systems, 111Federal Reserve System, 259Federal Reserve wire transfernetwork, 62Federal Savings and LoanInsurance Corporation (FSLIC)banking protection, 19Fiduciary, 259Final trust, 156Financial services industry, 33Finc~~ and Finc~~centraldatabase, 259Fiscal offenses, 259Fleet clause, 94-95Flight capital, xxvi, 26-28, 104,259growth of, 23Flight provisions, 94-95Forced heirship, 87-88Ford Foundation, 157Foreign (definition), 47, 259Foreign asset protection trust, 11,258Foreign corporation, IForeign Exchange RateConvertergetting information on, 296-97Foreign grantor trust, 186Foreign income function, 163-64Foreign Investor in RealProperty Tax Act (1980),259-60Foreign judgments, enforcementof, 95Foreign nationals, xxForeign person, 260Foreign personal holdingcompany, 56, 172, 260Foreign sales corporations,165-66Foreign trust, 1-2Foundationinter vivos, 159post-mortem, r59Foundatian council, 159

310 THE O F F S H O R t HOHEY B OFrance as tax haven, 232Fraudactionable, 89-90badges of, 90, 98hard, 89indicia of, 90soft, 89tax, 106, 215Fraudulent conveyance, 260Fraudulent Disposition Act, 40Fraudulent transfer, 86Fraudulent trust, characteristicsof, 158French Territories, 28Frequent flyer programs, 189Fulfillment company, 58Garbage cans, 189-90General banking rules, 111-12Geographic barriers, xv-xviGeographic diversity, 3Georgia Uniform PartnershipAct (UPA), 167Germany, IOOGhost investment vehicle, 214Gibraltar, 58, 87as company limited byguaranty in, 130override provisions of, 87as tax haven, 232Ginsberg, Anthony, xxviiiGlobal fund, 2Global insurance resource on thWeb, I99GmbH, 260Governing law, 28choice of, 40-42

Hybrid annuity, 261Hybrid company, 261Hype marketing, 205Illicit decryption, 191-92Illicit enrichment, 262Immediate annuity, 262Immigration residency, grantingof, I32Imminent risk of dying, 262In rem jurisdiction, 88-89In trust, xxviInbound, 262Income tax rate, maximum, 21Incomplete gift, 262Independent trustee, 157, 262Indicia of fraud, 90Inflation, rate of, 21Information exchange andprivacy, 32Inland revenue, 262Insurance Act (1997), 232Insurance services, 56-57- Insureweb, 199Intangible assets, 262Inter vivos foundation, 159Interbank rate of exchange, 262Interest in possession, 262Interest-bearing checkingaccounts, 118INTERFIPOL, 262Internal Revenue Code, 264Internal Revenue Service (IRS),23, 264applicable forms of, 177Criminal Investigative Divisionof, 253Customs Form 4Form 56,177Form 709, 178Form 929, 178Form 1040, 178-Form 1041, 179Form 3520, 179-Form 3520-A, 18Form 5471, 180,Form 8621, 184Form 8865, 184-8Form SS-4, 177Forms 82881828getting informat297-98requirements forprincipal offTreasury Form T178International BankReconstructionDevelopment,International busi261, 263International BusiAct (1990), 22International BusiAct (19961, 23International busi(1~~1, 4, 11, 4comparison chedefinition of, 55role of, 56-58International Chacommerce, 26International DepCorporarim (

312 T H E O f f S H O R f I O N E Y B OInternational Deposit InsuranceCorporation, 263International financial andbanking center, 20, 25, 263International fund, 2International services and setup16-17International Trade andInvestment Companies, 263International trust, 263Internet communication, 30Internet resources, 291-302INTERPOL, 263Investment services, 118Ireland, 7, 102as candidate for capital flight,27as company limited byguaranty in, 130getting information on, 298tax concessions in, 185as tax haven, 233-34Isle of Man, 20, 31, 58, 103as company limited byguaranty in, 130getting information on, 298as tax haven, 234Issuer test, 205Italy as candidate for capitalflight, 27Jacobs, Vernon, 135Jamaica as tax haven, 235Jersey, 102getting information on, 298as tax haven, 235Joint annuitant, 264

Limited liability limitedpartnership, 265Limited liability partnership, 265Limited-lifetime company, 130Limited partnership, 11Liquid assets, 118Lisztgetting information on, 299Living trust, 137, 139, 265Local banking, 55Local companies, 69Local jurisdictions, special taxconcessions by, 173Long arm jurisdiction, 40Long, Lazarus R., 240Loopholes, xxixLoro-Nostro account, 266Low-profile living, 4-5Lump-sum disability award,protection of, 23Luxembourg, 35, 102getting information on, 299as tax haven, 236. Macau, and taxes, 173Madeiragetting information on, 299tax concessions in, 185as tax haven, 236Malaysia as tax haven, 236Malta as tax haven, 236Marchant, David, xviiMareva order, 98Marginal banking licenses, 121Mark, 266Marshall Islands as tax haven,236Massachusetts trust, 11Mathewson, John, xxiiMauritius, 40, 87getting information on, 299override provisions of, 87as tax haven, 236-37Mavera injunction, 266Melchizedek, Dominion of,266as tax haven, 237Member, 266Memorandum, 266Memorandum of constitution,IS9Menuhin, Yehudi, 132-33Microwire, 43Migration clause, 266Migration for duress clause,94-95Mississippi and spendthriftclause, 36Mistrust, 13Modem-to-modem datatransmission, 30Monacogetting information on, 299Monetary controls, 63Monetary policies, 117Money laundering, 111, 264Montserrat, 41as tax haven, 238Morocco, 41Mortgage, second, 52Multinational companies, rise of,101-2Mutual fundoffshore, IT

Mutual Legal AssistanceAuthority, 41Mutual Legal Assistance Treaty(MLAT), 32, 41-42> 266Name restrictions, choice of,62- 63Nassau, 42Nauruas tax haven, 238and taxes, 173as zero tax haven, 185Negative interest rates, xxviNegative press, xx-xxiNetherlands, 35as tax haven, 238Netherlands Antilles, 35, 99, 102tax concessions in, 185as tax haven, 239Netzer, David, 237Nevada corporation, 11Nevada as tax haven, 20, 239Nevis, 20, 31, 87, 108getting information on, 300,301override provisions of, 87as tax haven, 240, 242New Brunswick, Canada, as taxhaven, 240New Hampshire and spendthriftclause, 36New Zealand as tax haven, 240Nigerian scam, 206-10Niue, 28getting information on, 300as tax haven, 241Nominee settlor, 97-98Nominees, 11-12, 16-17Noncitizenship passports, 134Nongrantor trust, 71, 266Nonresident alien, 267Noriega, Manuel, 241Northern Mariana Islands as taxhaven, 236Numbered accounts, 112-17Offcenter financial center, 267Offshore, 19, 47, 267reason to go, 21-24Offshore asset protection, xxiiOffshore asset protection trust,71-98Offshore banks, xxvii, 267improving image of, 104-5industry trends, 101-5and related bankingservices, 99-122Offshore betting and gaminglicenses, 166-67Offshore charitable or privatefoundations, 157-60Offshore communications andprivacy, 187-92Offshore company limited byguaranty, 130Offshore consultants, 82Offshore credit and debit cards,110-11Offshore economics, xxixOffshore exempt companies,rz9-30Offshore financial centers,reasons for using,103 -4

Offshore financial industry,extraordinary growth of, xvOffshore foreign currencyaccounts, 118Offshore Group of BankingSupervisors, 267Offshore incorporation, 6Offshore investinggetting information on, 282Offshore money, xviOffshore mutual or hedge fund,I1Offshore news, 281-82Offshore nominees, 12Offshore operating entity, 34-35Offshore operations, 16Offshore optionsguidelines for evaluating,26-35legal issues and terminology,36-42transferring assets, 42-47Offshore principal office,Internal Revenue Service(IRS) requirements for,176-77Offshore private annuitycontract, 126Offshore scams, avoiding,204-14Offshore tax deferral oravoidance, 216Offshore trust, 12Offshore trustee, 13role of, 11Onshorereasons to stay, 19-21Onshore real estate, 142Operating company, 47, 267Operating structure, 10-11factors influencing creation of,45 - 54Ordinance, 47Ostrich syndrome, 4Outbound, 267Override statutes, 87Ownership, 267Palau as tax haven, 241Panama, xiv, 58, 99, IOOtax concessions in, 185as tax haven, 241-42Paradis fiscal, 267Passport review, 188-89Passports, 133bogus, I34camouflage, 133-34economic, 136noncitizenship, 134Perpetual tourist, 269Perpetual traveler, 269 .Person (definition), 268Personal foreign investmentcompany (PFIC), 56, 172, 268Personal private bank, 119-21Personalized portfolio bonds,268Phantom income, 140-41Physical presence test, 163Pitfalls of bribery, 215Plaintiff's counsel, 23-24Political and economic stability,31Politics, jS

316 THE OFFSHORE HPortfolio manager, 82,role of, 13Post-mortem foundationPreference transfer, 162Preferential transfer, 26Pre-filing notice, 268Presence test, 164Prime Bank Trading ProGuarantees, or Deb268Principe as tax haven, 2Privacy, 62, 122getting information o282-83Privacy tool, 58Private accounts, 112-17Private annuity, 126-27Private banking, 118-22,Private family or charitafoundation, 11Private interest foundatPrivate interest foundat24rPrivate investment bankI1Privatizationgetting information oProbate, 268Probate avoidance, 58Proceeds of Crime Sect268-69Professional diversity, 3Professionals, quality ofProject Dora, 256Proprietary triple-trust146, 148Protector, 12, 269

Restricted business activities, 62Revenue Reconciliation Bill(1995 1, 130Rifugio fiscal, 270Rights of settlement, 86Rockefeller Foundation, 157Roll programs, 210-13Romaniagetting information on, 300Rudman, Ronald L., xvRule against perpetuities, 85-86,270Russia, currency of, 24Safety test, 205St. Christopher Island, 108St. Kitts, 31, 55, 108getting information on, 301as tax haven, 185, 242St. Lucia as tax haven, 242-43St. Thomas as tax haven, 243St. Vincent, 95, 235getting information on, 301as tax haven, 243. Samoagetting information on, 300SZo Tomi as tax haven, 243Sark as tax haven, 243Scam and fraud alertsgetting information on,283-84Second citizenship acquisitionprograms, 138-39Second passport, acquisition of,3 4Secured credit cards, 110-11Securities, 270Securities Industry ProtectionCorporation (SIPC), 20, 271Self- or captive insurancecompany, 34-35Self-liquidating loans, 212,213-14Self-settled asset protectiontrusts (APTS), 220Self-settled trust, 270Service providers, xxii, IS, 82resources on, 285-90Service trust, 156Settle, 270Settlor, 80-81, 270in contempt of court, 91,93-94Seychellesgetting information on,300-301as tax haven, 244Shares, 270-71Sicherheit und Privat Bank, 122Side letter, 31, 271Simensky, Melvin, 57Singapore, 103Situs, 25, 271Small Business Job ProtectionAct (1996), 82-83Smith, Adam, 105Social environment, local, 34Social stability, 34SocittC anonyme, 271Society for Worldwide InterbankFinancialTelecommunications (SWIFT),272Soft fraud, 89

318 THE OFFSHORE H O H E Y B O O KSouth Africa as candidate forcapital flight, 27Spain, 41as candidate for capital flight,27Sparbuch account, 114, 115, 117,271Special custodian, 271Special investment advisor, 271Special tax concessions, by localjurisdictions, 173Spendthrift clause, 36Spendthrift provisions in trust,1 42Spendthrift trust, 271Sri Lanka as tax haven, 244Starchild, Adam, xxviiiStatute of Elizabeth, 81, 87, 98,163Statute of limitations, 36, 40, 271Statutory, 271Sterling Group, 93Steureroase, 272Stock market, taxes oninternational businesscompany investing in, 174Sub-part F income, 272Subpoena duces tecum, 111SWIFT system, 43Swiss-American Treaty onMutual Assistance inCriminal Matters, 107Swiss annuity, 124-26Swiss banking records, 112Swiss banking system, 105-7breaches of secrecy, 106-7historical secrecy in, 105-6Swiss Banksgetting information on,298-99Swiss Civil Code, 105Swiss inheritance law, 106Swiss Postfinance, 117Swiss Postfinance services,117-18, 272Switzerland, 35, 100, 102getting information on, 301as tax haven, 244Tax abode, determining locationof, 164-65Tax attributes, classifying taxhavens based on, 185Tax avoidance, 6Tax-avoidance transaction, 272Tax evasion, 6, 102, 106, 215Tax fraud, 106, 215Tax havens, 25, 102, 272Alaska as, 220-21Alderney as, 221Andorra as, 173, 221Anguilla as, 185, 221-22Antigua as, 222Aruba as, 222-23Austria as, 223Bahamas as, 185, 223Bahrain as, 224Barbados as, 185, 224Barbuda as, 222Belgium as, 224Belize as, 225Bermuda as, 185, 226British overseas territories as,226-27

British Virgin Islands as, 173,185, 227Caicos Islands as, 185Campione as, 227Canary Islands as, 227Cayman Islands as, 185,227-28Channel Islands as, 185,228-29classifying, based on taxattributes, 185Cook Islands as, 229-30Costa Rica as, 230Cuba as, 230Cybernation of New Utopiaas, 240Cyprus as, 173, 230-31Delaware as, 20, 231Denmark as, 231Dominica as, 231-32Dominion of Melchizedek as,237Dublin, Ireland, as, 232- France as, 232. Gibraltar as, 232Grenada as, 232-33Grenadines as, 243Guernsey as, 233Hong Kong as, 185, 233Ireland as, 233-34Isle of Man as, 234Jamaica as, 235Jersey as, 235Labuan as, 235Liberia as, 235Liechtenstein as, 235Luxembourg as, 236MMMMMMNNNNNNNNNP7'n

320 T H E O F F S H O R E I O H E Y B O O KTax planning, 102Tax regimen, 33, 60, 272Tax treaties, 32Tax-neutral structures, 216Taxpayers Relief Act (1997)~ 173Taxable event, 47Taxeson annuity proceeds, 173-74getting information on, 284implications of, for UnitedStates persons, 171-72on international businesscompany investing inUnited States stockmarket, 174on renouncing U.S. citizenship,174-76on United States grantor,172-73Technicalities, 96-97Telecommunicationsgetting information on, 284 ,Telephone records, 189Thailand, 41Time zone, 31Timeshare resorts, 11Tonga as tax haven, 244Trading company, 58Trading program, 273Tranche, 210, 273Transcrypt International, 31Transfer pricing problems, 58Transmogrifying, 162, 273Travel agent records, 188-89Travel information, 280Treaty shopping, 60True settlor, 273Trust deed, 12, 83, 88, 273Trust indenture, 274 .Trust protector, 12, 50, 81, 274Trust services, 56Trust settlement document, 274Trustee, 50, 81-82, 273Trusts, 13-15, 273evolution of, 74-77Tundra trust, 220Turks and Caicos Islands, 31, 32,35, 41, 55, 87, 99, 108getting information on, 301stability of overseas territory,29as tax haven, 185, 244-45Typo-piracy, 274Unicorporated businessorganization, 274Uniform Fraudulent ConveyanceAct, 98Uniform Fraudulent TransferAction, 98Uniform Partnership Act, 274Unincorporated businessorganization (UBO or BO),11, 145-46, I47Unincorporated organization,274United Arab Emirates as taxhaven, 245United States as candidate forcapital flight, 27-28United States citizenshiprenouncing, 134-37tax on renouncing, 174-76United States currency, 21

United States grantor, tax on,172-73United States litigationexplosion, xvUnited States living trust,features of, 74United States persons, taximplications for, 171-72United States stock brokerage. accounts, insurance of, 20Upstreaming, xx, 274URL, 274Uruguay, 41U.S. person, 274Utah as tax haven, 20Vanuatu,, 28as tax haven, 185, 245Variable annuity, 275Variation partnership, 11Venezuela as candidate forcapital flight, 27Venue, 25Vetting, 275. Viatica1 settlement contract, 275Viatica1 settlements, 165Virgin Islanas tax havVoice commtelephonVoice scram31WastebaskeWertpapierbWestern Sam246WestminsteWindfall tesWire transaWire transfWithholdinWorld AssoInternatCentresWorld BankWorld tradegetting in302Wyoming aZimmerman

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