The days of secret bank or trust accounts in offshore financial institutions or tax havens seem to be over.
The International Consortium of Investigative Journalists (with the Philippine Center for Investigative Journalism participating) recently released its findings on global tax havens.
According to the report, three Filipinos—Ilocos Norte Gov. Imee Marcos, Rep. Joseph Victor Ejercito and Sen. Manuel Villar—have trust accounts in the British Virgin Islands.
Marcos is running for reelection in her province. Ejercito is vying for a Senate seat under the United Nationalist Alliance. Villar, whose term will expire in June, has fielded his wife, Cynthia, to replace him in the Senate.
The disclosure of the trust accounts drew varying reactions from their alleged owners. Refusing to give comments, Marcos said her lawyers would do the talking for her as soon as more details about the accounts are released.
Ejercito neither admitted nor denied its existence. When asked if he disclosed it in his Statement of Assets, Liabilities and Net Worth, he said that to the best of his knowledge, he included all his assets in his SALN filings.
For his part, Villar admitted to being a shareholder of a trust account named Awesome Dragon Holdings Ltd. He pointed out, however, that he organized it in 2007 with $1 capitalization “as a ready corporate vehicle for any multinational business opportunity” and that it has since been dormant.
The actions taken by the three alleged trust account holders did not come as a surprise to people knowledgeable with the inner workings of bank or trust accounts opened and maintained in the world’s famous (or notorious) tax havens.
A country or place is considered a tax haven if it has “a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance.”
In consideration for strict confidentiality and low to zero taxation, the über rich deposit their money or organize corporations in these places to avoid the prying eyes of their home countries’ financial and corporate regulators.
The more prominent tax havens are Liechtenstein, British Virgin Islands, Bermuda, Curacao, Bahamas and Cayman Islands. Their other common denominator is they are tourist sites that cater to the rich and famous.
Except for a few questions to comply with minimum “know your customers” standards, no probing queries are made about the source of funds deposited or capital placed in corporations when accounts are opened or corporations set up.
Unless a person is a known terrorist or has been the subject of adverse publicity, anybody who can present a valid passport can walk into the offices of tax havens to do business with them.
The anti-money laundering rules of the Financial Action Task Force are more observed in breach in these sites by managers who are experts in dodging tax and corporate regulations in different countries.
The registration process for trust or corporate accounts is deliberately made easy and cheap to attract customers.
To keep these accounts on “active” status, the registrant or account owner is required to name a nominee-director or representative who is a resident of the place to, among others, receive notices and file reports on his behalf.
The annual fee for that service ranges from $1,000 to $5,000, depending on the nature and extent of services that may be asked to be performed.
The nominee-director is the account holder’s eyes and ears in the tax haven. He is tasked to, for example, alert his principal if suspicious inquiries are being conducted on the account or changes in the tax regulations may affect the account.
Unless the account has been abandoned or the corporation’s registration is dissolved, an account holder or registrant cannot claim lack of knowledge about it because he is obliged to remit every year the fees of his nominee-director, including maintenance charges, to keep his account current.
The remittance of such fees to the nominee-director creates a paper trail in the remitting and receiving banks, more so if they are situated in different jurisdictions, to ensure compliance with anti-money laundering regulations.
A quick check by Ejercito of his bank records would have enabled him to categorically state whether the trust account attributed to him is true or a pigment of the imagination of investigative journalists.
The claim of Villar that he opened the account as a possible corporate vehicle for international activities of his business conglomerate does not inspire confidence.
An astute businessman who is no stranger to international transactions, he knows that the registration of a corporation in a tax haven is apt to raise alarm bells to business executives who may want to do business with him.
Sadly, the phrase “tax haven” is associated with tax evasion, money laundering, drug money, ill-gotten wealth, corrupt leaders and other ideas of similar odious nature.
When a corporation lists a tax haven as its place of registration or uses a bank account in that place for the remittance or receipt of funds, the question that often crosses the mind of the party it deals with is, why is it doing business from that place?
The not so sterling reputation of tax havens has an uncanny way of attaching itself to corporations or people who use it as a base of their operations. Rightly or wrongly, the stigma raises doubts about the integrity of the people behind tax haven-registered accounts or corporations.
Villar would have saved himself a lot of money in travel costs and fees (and perhaps avoided doubts about the true objective of his trust account) had he put up instead the company for his planned international business activities in Hong Kong or Singapore.
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