In trusts we trust
This long blog offers a simplified primer on trusts, to help foster better understanding of how trusts are used to create secrecy, to evade or avoid tax, and to get around rules, laws and regulations. It is illustrated mostly with reference to the United Kingdom, the original home of the trust concept, and to Jersey, a secrecy jurisdiction that has made it onto the OECD’s “white list”. It is simply descriptive: it is neither intended to be comprehensive and exhaustive, nor does it offer solutions for tackling abuse (something we intend to tackle in due course.)
Most people take it for granted that when they own an asset – a bank deposit, say, or a painting – it is a simple matter: they own it, and that is that. In fact, however, ownership is a more complex concept involving a bundle of different rights: these include the legal title to the asset; the right to an income stream from an asset; the right to control the asset and direct how it is used; and other things. Usually these rights are bundled together into one, and you don’t notice the difference. Yet these rights can and frequently are unbundled. For example, if you buy a house on a mortgage, you are the legal owner, but the bank or building society has rights to foreclose and take over the property if you default on the payments.
Trusts are ways to unbundle different the aspects of ownership into separate parts. This can be done for valid and legitimate reasons, or for abusive ones.
A trust typically involves three main parties. One party (“the settlor” or grantor or donor) -- typically a wealthy person, hands over control of an asset to a trusted second party (“the trustee”), perhaps a lawyer, who in turn controls the property on behalf of a third party (“the beneficiary”) who might be the settlor’s child, for example. The trustees are the legal owners of the asset (“the trust property”) but they are not the beneficial owners, and apart from fees the trustees should receive no benefits from the assets. Trustees are bound by a “deed of settlement” (or trust deed) in which the settlor lays out instructions about how the assets of a trust can be used; the trustee is bound by law to follow these instructions. Trusts are generally meant to incorporate this split of roles, responsibilities and entitlements (although as described below there are trusts, sometimes known as purpose trusts, for which there is no intended beneficiary.)
(Contrasting the trust with the limited liability company may help illustrate this further. The owners of a limited liability company control it as beneficial owners: they have full control of the company through the company’s bodies – on behalf of themselves.)
Many varieties of trusts exist. The U.S. Internal Revenue Service (IRS) provides a glossary here and the UK Revenue and Customs provides a clear outline of some of the main forms of trusts here.
The historical origins of the trust mechanism help illustrate what is happening. They were first used, the legend goes, in the early Medieval period in Europe when knights (in effect, the settlors) headed off to the Crusades and left their property and land in the hands of trusted stewards (trustees), who would look after them on behalf of third parties – typically their wives and families (the beneficiaries) – under a set of clear instructions (the deed of settlement.)
In more recent times trusts became used typically for inheritance tax purposes: people with assets (settlors) created trusts to pass assets to their children (beneficiaries) and these assets were managed on the beneficiaries’ behalf by trustees. For example: a settlor might say to a trustee: “here is a million dollars. You take it off my hands, and you are instructed to invest it; then when my oldest child is twenty-one you pay him a half of the current value; pay the remainder to my youngest when she is twenty-one.” The trustee should in theory be fully independent of the settlor. Again, although the trustee has legal title to an asset (so, for example, he or she can sell them – though the proceeds must go to the beneficiaries), the trustee is not the beneficial owner - so, for example, if a trustee becomes insolvent, creditors have no claim on it.
A body of law grew up around these arrangements so that they have become enforceable, and an industry has grown up around these laws, often to provide services to facilitate them, and trust facilities have become replicated in many jurisdictions around the world.
1.2 Q: Why does the settlor have to give away assets as part of a tax avoidance or evasion strategy? Doesn’t that drastic step more than defeat the original objective?
It can be hard to understand why a settlor would want to give away their assets. To lose the whole asset seems like an oversize price to pay if the aim is, say, to cut the tax bill on the income from that asset.
A first answer to this question is that the British upper classes, quite comfortable with sending their children away to be cared for by trusted strangers in boarding schools, also seem to be perfectly happy separating themselves from their money, to be managed by trusted strangers. This apparently light-hearted answer conveys an important point, however, that there is a significant cultural element here: people in Anglo-Saxon traditions have tended have grown to be more comfortable with trusts than are people from other jurisdictions.
A second, more serious answer is that while the settlor has, in theory, given the assets away to a trustee, who has legal title to them, the settlor can still exert a measure of control over the assets. Offshore jurisdictions in particular allow very wide powers to settlors – which mean they can still pretend to have been separated from the assets, while in reality they exert a large measure of ongoing control and can, to all intents or purposes, be considered to be the real beneficiary. This can become a game of smoke and mirrors. Several examples of how this is done are given below.
1.3 Q: How is secrecy obtained through trusts?
This happens in several layers. The first two described below are specific to trusts; the others are techniques commonly used with trusts but which are common with other structures, such as companies, too.
In a first layer, trusts create a legal barrier between the trustee, on the one hand, and the settlors or beneficiaries, on the other – and in the process this creates the potential for an information barrier in the same place as the legal barrier. Even if you can find out who a trustee is, the trustee may be bound by a confidentiality arrangement not to reveal who the settlors or beneficiaries are. Often, and especially in a secrecy jurisdiction, the trustee will be an anonymous trust company that specialises in being a trustee for many thousands of trusts, and there will be no obvious clue to suggest who the settlors or beneficiaries might be.
A second layer of secrecy is typically provided for in onshore and offshore legislation, which may stipulate – as in the case of the Cayman Islands or Jersey – that trusts do not need to be registered. (A trust is just a legal instrument; it does not have its own legal identity which might require registration.) If there is no register of trusts, you may not know what you are looking for. For example, a Jersey trust provider, Appleby, said this:
A trust is not a public document and does not need to be registered with the Jersey authorities. Furthermore, neither the settlor nor the beneficiaries will be the registered owner of any trust assets. As a result, a trust arrangement can be regarded as highly confidential.
A third layer of secrecy may involve several layers. This might split the trustee, the settlor and the beneficiary between three different jurisdictions, with the assets themselves parked in a fourth jurisdiction (or many jurisdictions.) Not only that, but a trust might be layered upon another trust or another structure, itself split between two or three further jurisdictions. For example a trust’s assets may be shares in a company controlled by nominee directors in a jurisdiction where it is impossible to find out who the company directors are or what the company does. That company’s assets may also turn out to be deposits held in a bank account in a country with strong bank secrecy laws. This layering process can, and frequently does, go on for several more steps, making it fiendishly hard for the forces of law and order to work out what the trust is really about – if they can identify it in the first place.
A fourth layer of secrecy, which does not only apply to trusts, involves the international protocols by which information is exchanged. Some countries simply refuse to exchange meaningful information with others, although this is becoming less common as a result of international pressure. Nevertheless, many generally agreed protocols such as the OECD’s standards of “exchange of information only on request” (as opposed to automatic, multilateral exchange of information) are pitifully weak, making it exceedingly hard to find out information even if you know what you are looking for (and frequently it is hard to know where to start looking in any case.) See more in our briefing paper on information exchange, here. One such protocol is the Tax Information Exchange Agreements (TIEAs). An official Jersey website says, for example:
A high threshold therefore exists before the Jersey authorities will accede to a request under a TIEA. For example in the past year, there have been just four requests from the US under the terms of the TIEA. There is no automatic exchange of information under any circumstances and no ‘fishing expeditions’ for information. Strict confidentiality provisions in the agreement preclude any information being passed to third parties without the express written consent of the requested country.
Not only that, but trusts constitute major loopholes in international treaties and arrangements. A good example is the European Savings Tax Directive which applies to income on bank deposits, but not to income from trusts. This may be amended.
A fifth layer of secrecy involves the many other offshore tricks that assist secrecy, though these are generally not exclusive to trusts and will not be discussed in detail here. These might include, for example, “flight clauses” that require trustees and company administrators to transfer assets to a different jurisdiction at the first hint of investigation.
In a slightly different context, when somebody dies trusts are often used in place of wills, as a way of keeping financial affairs secret; wills must be filed in a probate court to be executed, meaning that they become public documents. Trusts can stay secret.
1.4 Q: where are trust assets actually located?
This is important. If a trust is administered in one jurisduction, the underlying assets may be located anywhere. If a newspaper somehow finds out about this trust, it may say “a trust in Jersey” – but in fact although the trustees are in Jersey, the underlying asset will typically be held in London. In fact, Jersey serves as a conduit and a satellite of the City of London, sweeping up assets from around the world and parking them in London – even if the trust is supposedly located in Jersey.
1.5 Q: How are trusts taxed?
Trust tax law is a complex area, and the principles vary according to the jurisdiction, so this blog only gives some basic notions.
In the UK, for example, trust tax is paid by the trustees (the legal owners of the trust property) out of trust funds. However, a trust beneficiary may also have to pay tax separately on the income they receive from a trust. (Sometimes inheritance or other taxes may also be paid upon the transfer of some property into trusts.) Yet trustees in Jersey, by contrast, do not pay Jersey income tax on certain common types of income, at least if the settlor and beneficiaries are resident elsewhere.
Adding to the complexity, trusts may or may not produce income. For example, an antique painting held in trust constitutes capital, but it will not produce any direct income, whereas $100,000 sitting in a bank will produce bank interest. The income, and the capital, may go to different beneficiaries, and different taxes may apply on the different elements: income tax, capital gains tax and so on – each of which may be taxed at different rates. The UK, for example, currently has an income tax rate and an inheritance tax rate of up to 40%, and 18% on capital gains. Jersey, by contrast, does not have capital gains tax or inheritance tax, and it has zero tax on certain common types of income. UK Revenue and Customs give some basic principles here.
1.6 Q: How are trusts used to avoid and evade tax, in theory?
In summary, two main themes are involved.
First, because a trust creates a distinction between the legal owner, the trustee, and the beneficiary, this complicates the issue of how to tax the trust. This creates many avenues for both avoidance and evasion.
Second, because trusts create the potential for great secrecy, tax authorities cannot easily find the assets to tax them. This typically creates possibilities for tax evasion. Often the two themes: the legal distinction, and the secrecy, apply simultaneously.
In theory, once a settlor passes the assets into a trust, he or she no longer owns it, so cannot be taxed on its income. So a settlor should not be a beneficiary too. If a settlor could say in the deed of settlement: “make all the assets available to me whenever I want them” then the tax authorities could judge them still to be the real owner of the asset – and tax them on the income. If the ownership were not really split, what would the point of a trust be? The property would be owned absolutely by one person, for own benefit.
However, as explained above, if the settlor is able to pretend to let go of the assets in order to escape a tax bill, while not having let go of them in reality, then he or she may be able to enjoy the income or other benefits of the asset without paying tax. The question of whether or not the settlor has really become separated from the assets can be a legal grey area, raising difficult questions over whether this is avoidance or evasion.
The U.S. IRS notes this, in a primer on trusts:
Abusive trust arrangements often use trusts to hide the true ownership of assets and income or to disguise the substance of transactions. Although these schemes give the appearance of separating responsibility and control from the benefits of ownership, as would be the case with legitimate trusts, the taxpayer in fact controls them.
Games of smoke and mirrors can also be played between the trustee and the beneficiary. The discretionary trust is an example, below.
1.7 Q: How are trusts used for tax avoidance and evasion, in practice?
A wide variety of other mechanisms are used to cut tax bills. Just a few examples are given below; new ones are being invented or modified all the time.
One of the central mechanisms, as explained above, is for the settlor to enjoy benefits from an assets while pretending to have become entirely separated from them. (One might call this the “settlor’s pretence.”) Secrecy is often a counterpart of such schemes.
Some of the world’s finest legal minds spend their time dreaming up schemes using these kinds of principles – generally, the more complex (“sophisticated”) they are, the harder it is for tax authorities or crime-fighters to penetrate.
1.7.1 Permissive or "flexible" laws giving special powers to the settlor
Laws in secrecy jurisdictions in particular are set up with the intention of helping create the “settlor’s pretence.” As one Jersey commercial website puts it:
Jersey trusts are created and governed pursuant to the Trusts (Jersey) Law 1984, as amended. The 1984 Law is essentially a permissive law which provides, in effect, that the terms of the particular trust determine the duties and obligations of the trustee thereof.
Note the word “permissive” and the suggestion of how the flexibility of offshore arrangements can create trust products tailor-made for tax evasion. The U.S. Congressional Research Service describes another way of achieving the settlor's pretence:
"Trusts may involve a trust protector who is an intermediary between the grantor (settlor) and the trustees, but whose purpose may actually be to carry out the desires of the grantor."
The Cayman Islands’ Star trusts are even more stark versions of the settlor's pretence. While Star trusts are used for many purposes, another commercial operator describes this possibility:
The settlor has the power to make the trust's investment decisions and the trustee is under no obligation to ensure the investments are in the interests of the beneficiaries.
Other examples include:
1.7.2 Replacing the trustees
A trustee might, for example, appear to be independent from the settlor when the trust is set up, but then be replaced later by a more pliable trustee, or even by the settlor himself, in disguise, perhaps through another complex offshore secrecy arrangement involving trusts elsewhere.
1.7.3 Sham trusts
Jersey’s sham trust is another example of the “settlor’s pretence.” Jersey Finance says this of its new laws introduced in 2006
Among the amendments is the introduction of settlor-reserved powers. . . the powers that may be reserved by the settlor will include the power to appoint and remove trustees, to amend or revoke the terms of the trust and to appoint or remove an investment manager or investment adviser
Richard Murphy analyses what this means:
Jersey will now allow the creation of what can only be called ‘sham trusts’, although they’re calling them trusts with ‘reserved powers for the settlor’. What are those reserved powers? Well, the settlor can tell the trustee what to do, which means the trustee only has a nominee role. And the settlor can claim the property back (see “revocable trusts,” above.) . . . In other words, the settlor continues to have complete beneficial ownership of the asset and there is in fact no trust in existence at all, just a sham that suggests that there is. . . . This is a completely bogus transaction. I have no doubt that Jersey knew the new laws would facilitate tax evasion. Indeed, it is hard to see what other purpose they could have.”
Belize, a 2008 US Senate report notes, offers something even more blatant:
"In Belize you can be the grantor, the trustee, and the beneficiary, and have the trust considered valid."
1.7.4 Revocable trusts
A more specific way to achieve the settlor’s pretence is through a revocable trust (that is, the settlor could decide to revoke the trust and get their property back whenever they wanted.) In such a case, it is hard to see how the settlor has really let go of the asset if they can always get it back: trusts should in theory be irrevocable for the settlor to get the tax benefit. However, it can be hard for tax authorities to find this out or fight legal battles in support of a tax claim. Laws passed by Jersey in April 2006, for example, said that every single Jersey trust can now be revoked.
Read more here.
1.7.5 Private Trust Companies
Another way to give the settlor more control is to appoint a Private Trust Company (PTC) as the trustee, then have the settlor (or perhaps a family member) be a director of the PTC, giving the settlor a significant degree of control. As one offshore promoter puts it:
If you’re familiar with the concept of an offshore trust but always had issue with handing over control of your assets to a third party you are not alone. Many people fear that the establishment of a trust really leaves them in too tenuous a position regarding the protection and management of their own assets…which is why private offshore trust companies came into being. They give the settlor far greater asset control.
In the Cayman Islands, for example, it is extremely hard to find out who a company’s directors are, so it can be hard to work out that the settlor has this measure of control.
Similarly, Jersey Finance says this:
A PTC (Private Trust Company) can be established in Jersey on a fast track basis within 24 hours and other than providing the name of the PTC to the JFSC, there are no other regulatory hurdles to surmount. For the reasons set out above, PTCs have become increasingly popular with high net worth individuals . . . . PTCs are also typically used to act as the trustee of family charitable or philanthropic trusts or where the assets to be held in trust are regarded as being of the sort which carry greater risk for a trustee than usual.
In other words, you only need to provide the name of the PTC to the authorities, but not the underlying information. Note the section in bold text, and ask what this “risk” means. This is most likely to mean the risk of getting caught engaging in malfeasance?
1.7.6 Discretionary Trusts
A discretionary trust is one where the trustees can pay out income or capital to one or more of a group of beneficiaries, entirely at the trustees’ discretion. This is not about the settlor’s pretence. The beneficiaries have no right to demand income from a discretionary trust. Discretionary trusts can, for example, protect trust assets against the bankruptcy of a beneficiary: since a beneficiary has no claim to any specific part of the trust fund, none of it can be claimed by creditors in the event of the beneficiary’s bankruptcy.
Yet from tax authorities’ points of view these kinds of trusts have another crucial feature: because no single beneficiary can be said to have title to any trust assets prior to a distribution, there is no obvious taxable asset for tax authorities to be able to get a handle on. This makes it a powerful weapon in the tax-dodgers’ arsenal.
Illustrating how difficult it is for tax authorities to tackle these trusts, the Society of Trust and Estate Planners (STEP) has said of efforts by the European Union to update its EU Savings Tax Directive to include discretionary trusts:
It would appear difficult to draft practicable trust-related amendments to the Savings Directive of the kind referred to in the Working Document which would be "litigation-Proof"
The EU is likely to take a contrary view.
1.7.7 Other mechanisms for promoting tax evasion
The simplest is tax evasion through subterfuge: assets generating income and capital gains are parked in secrecy jurisdiction where the owner’s tax authorities are simply unaware of what is going on. This may be the commonest form of tax loss, though it is impossible to measure with any precision, and it is of course not only a problem for trusts.
220.127.116.11 Bogus expenses
Bogus expenses might be charged against income at one layer. After these expenses are deducted, the remaining income is distributed to another trust, and the process is repeated until, in many cases, the income falls to zero. Tax is eliminated from the trust income by distributing all that income to the beneficiary; and tax on the beneficiary is eliminated through the claiming of bogus expenses to set off against tax. This scenario is a criminal matter.
18.104.22.168 Complexity and jurisdiction shopping
If the trustee, the beneficiary, and the trust assets are located in the right combination of jurisdictions, tax can often be avoided altogether without technically breaking the law. This is not always a simple matter: a German resident, for example, should generally expect to pay tax on their income and capital gains, wherever in the world they are realised. But some countries create categories such as the non-domiciled residents: usually wealthy individuals who are absolved of the need to pay tax on their worldwide income. This creates opportunities to cut the tax bills through jurisdiction shopping, again without technically breaking the law, though this end need not be achieved through trusts.
A tax bill on a trustee can be made to fall upon a beneficiary, if so intended, perhaps because of where the trustee and beneficiary are located. So a trustee may distribute all the trust income to beneficiaries, then legally deduct these distributions from its taxable income, reducing its taxable income, and its taxes, to zero. If the trust is offshore, the tax rate on trust income may well be zero in any case. For example, the trustees of a Jersey trust are not liable to income tax on the income from trust assets where none of the beneficiaries is Jersey resident.
Complexity is a classic support for secrecy. For example, you might have a trust whose trustees are a Jersey law firm (but which is not registered), whose trust assets consist of shares in a company in Luxembourg which has nominee directors. The company might have a bank account in Liechtenstein, but the bank account might be managed by a Geneva private banker, which invests the funds in Hong Kong. Many structures are more complex than this – and a secrecy wall must be penetrated at every step.
As one former trustee put it:
“You will not get any disclosure of who's behind them. There will be no register anywhere of who is the real owner, or who is the beneficiary. You will never find them for tax purposes – these are far more secretive than bank accounts under bank secrecy.”
The IRS of the United States provides another example here. Other abusive schemes can be seen here.
In the promotional literature, the euphemisms for ‘complex’ or ‘complexity’ being used to create secrecy are words like ‘sophisticated’ and ‘sophistication.’ These words should generally be taken as a red flag.
Q. What else can trusts be used for, apart from tax evasion?
Trusts can be used in a number of legitimate ways. For example, they can be used for the genuine charitable transfer of assets; or to hold assets for minors and those unable to handle their financial affairs.
However, take a look at this list of other possible uses of a trust, from the Jersey Association of Trust Companies (JATCO)
• Preservation of family property and protection against political risk
• Tax planning
• Avoidance of inheritance laws or probate formalities
• Employee benefit trusts and employee share option schemes
• Charitable trusts
• Purpose trusts
• Trading trusts
• Unit trusts
• Avoidance of exchange controls
• Ownership of special purpose vehicles
It is useful to unpack this list to understand its meaning. Note how many of these bullet point items refer to undermining the laws of other jurisdictions – that is, helping the wealthy (who can afford the fees) escape their responsibilities to the societies upon which they and their wealth depend.
Note: “Avoidance of inheritance laws.”
Is it right that a tax haven should get to decide whether wealthy individuals should be provided with facilities that enable them to escape the laws that normally affect the rest of us?
Exactly the same could be said of “avoidance of exchange controls.” Whatever one thinks of exchange controls, if, say, a democratic developing country’s government decides it wants to impose certain types of controls to try and counteract massive capital flight by the wealthiest sections of society– is it right that tax havens should provide trust facilities to undermine that?
“Preservation of family property and protection against political risk.” This is a complex area. “Preservation of family property” may well mean, in practice, “protection from the tax authorities” or “protection from creditors.” The latter often protects the proceeds of ‘take the money and run’ illegal activity that is a common feature of the international criminal underworld. “Protection against political risk” is typically a euphemistic term for “protection” against one’s own government and particularly its tax authorities and/or other law enforcement bodies.
A trust provider in Jersey is more explicit:
a trust can provide for the transmission of wealth in a manner which may not be allowed, and to persons who may not be entitled, in some countries.”
In a similar light, another company boasts of “enhanced protection of Jersey trusts from adverse foreign court judgments.”
Jersey Finance adds this:
The validity of a trust governed by Jersey law will not be affected by any rights conferred on anyone under a foreign law.”
In other words, ‘we will help you get around the laws of the place where you live.’
Trusts and Special Purpose Vehicles
As the JATCO list above notes: one purpose of trusts can be “Ownership of special purpose vehicles (SPV)” These kinds of bodies have been a central feature of the latest global economic crisis. Why are trusts often used for these arrangements?
What trusts do, as we’ve noted, is to split ownership. If a company puts its assets into a trust, for example, it can be treated as if it is so that it is no longer the beneficial owner of the assets, then it can be arranged so that the assets are no longer bound by the regulatory or tax requirements of the jurisdiction where it is incorporated. A trust arrangement might help a bank, say, shift assets off its balance sheet. As one analysis put it, “the company (then) belongs to no-one.”
SPVs are not only set up for tax reasons but for other specific purposes (which is why they are called “special purpose” vehicles – they may be used to ring-fence one part of a business, perhaps to prevent it from “contaminating” (through, say, uncontrolled losses) another part of the business, or vice versa. A company may want to, say, invite investors into a particular project, but protect them from risks inherent in the parent company itself. The trusts involved are often known as “purpose trusts” – which are neither charitable nor for obvious beneficiaries, but for a special purpose.
Quite often, charitable trusts are involved. A famous example was in the case of the failed British bank Northern Rock, which was discovered to have a charity for children with Down’s Syndrome – with the charity unlikely ever to receive a penny from the arrangement, and even unaware that it was the beneficiary. The charity said:
“We are investigating why our charity appears to have been named as a beneficiary of a Trust without our consent.”
Why did Northern Rock do this? Because trusts need beneficiaries – although because of the way it was set up there was no real need to pay any money to beneficiaries: all the important business was between settlors and trustees. As one commercial analysis put it
“A trust must have an identifiable beneficiary to exist and, for that reason, nearly all trusts include a long stop charity as a beneficiary in case all of the named beneficiaries should die. To use a trust for commercial purposes it is therefore necessary to employ a charitable trust whose real purpose is commercial.”
While trusts have sometimes been used as special purpose vehicles themselves, often the SPV is an “orphan” company whose equity share capital is held by the trustees of a general charitable or purpose trust.
Q: What other mechanisms are used, apart from trusts?
Other common mechanisms are anstalts (establishments, used in Liechtenstein) and stiftungs (foundations) and various other types of corporate entity. These are outside the scope of this primer.
Q: What countermeasures are taken?
Tax authorities in foreign countries routinely seek out, and take countermeasures against, abusive trust arrangements. Tax authorities try to determine the economic substance of a transaction, rather than take a purely legalistic view, and they can and do overrule what a taxpayer thought was a bullet-proof asset “protection” mechanism.
The U.S. IRS, for example, would take a very dim view of a US taxpayer using a Jersey sham trust, and would not let the settlor get away with it, if discovered. Yet to do this the IRS must first find out that this is going on – the secrecy involved makes this hard, and Jersey will not volunteer this information.
If the well-resourced IRS has enough trouble keeping track of these criminal or questionable arrangements, how much hope is there for countries with less well resourced or skilled tax authorities?
Cautionary note: Confusingly, there are companies out there that call themselves "trust companies" or "trust services companies" which in reality are not directly related to the concept of the trust. One of these companies describes its services here.
*Endnote Please add any comments, clarifications and queries underneath this blog (or contact TJN staff directly).
Update: this was complemented in November 2010 by this article by François Valérian of Transparency International, about how trusts and other structures are used to move dirty money into the licit financial system.