Monday, May 09, 2011

The real reason for Jersey and Guernsey foundations

A while ago we wrote a long blog about trusts, explaining what they are, and how they are so often used for abusive purposes. Recently, however, there have been moves by Jersey, Guernsey and others to get into the business of foundations, which are a similar, related, but different, kind of structure. (As an aside, note the detail in this Jersey story: the role of the UK in approving this stuff - the general pattern here) "At a meeting held this week in London, an order was made approving the Foundations (Jersey) Law 2009."

Now on what foundations actually are: one offshore promoter put it like this:
"Trusts are . . . tools of the rich used to stay rich and deny people access to their funds. . . . Foundations were designed not by the rich but by the super rich to protect their assets insulating them from seizure and confiscation. These asset protection tools are so good they should be illegal but they are not illegal."
In short, trusts separate out the legal ownership of an asset from the beneficial owner - thus creating a wall between the person who enjoys the assets (the beneficial owner) and the actual legal owner. Essentially, this wall can then be used for creating secrecy, for foxing tax authorities and creditors, and much more.

Now foundations are a little different (see here, for quite a good, if rather dry and legalistic, overview) A foundation owns assets, along with a set of instructions as to how the assets should be used, but the foundation itself has no owner. So there will be no ownership records anywhere - because they don't exist. As another offshore promoter puts it:
"Think it was hard to find out your information, for your enemies, in Panama before? Now they are dealing with a foundation that doesn’t have any information about it anywhere!"
Now on foundations, Tax Research makes an important point.
I was talking to someone of considerable expertise on tax haven / secrecy jurisdiction issues about Jersey and Guernsey foundations. He pointed out the real reason for them, and I quote:
I read your piece about foundations. A point you might consider – the main reason for the foundation law was to avoid fiduciary responsibility. A number of court decisions in Jersey held trustees responsible for the activities of the corporations they controlled. Obviously this increased trustee risk to a very high level. When a foundation is involved the new foundation law absolves the agents creating and managing them from responsibility.
Now it makes sense!

Foundations are about screwing the client as well as the rest of the world.

It’s obvious when seen that way.

But then I admit, I’m always amazed that anyone trusts offshore practitioners. When their whole business model is based on deception of various sorts, why would you trust them? I know I wouldn’t. It would irrational to do so, and for once I think rationality has a real roll to play.
For more on trusts, click here. And for more on the untrustworthiness of trusts -- a problem which applies to foundations too - click here. Oh, and for a reminder of the mind games these places are playing, click here.

3 Comments:

Blogger Physiocrat said...

Lima, Victor, Tango. As I have said before and you tell me off for being unoriginal.

6:34 am  
Anonymous TJN said...

Look, Physiocrat, as we've said before, we think Land Value Tax is a very good thing - you saw Philip Inman's latest - but only as part of a comprehensive tax system.

12:26 am  
Blogger Physiocrat said...

If LVT is part of a comprehensive tax system, which other taxes should be kept and why? Every tax has substantial set-up and running overheads before anything at all is collected. Operating costs of the London congestion charge, for example, take a significant chunk out of the yield.

The main reasons for taxation apart from revenue-raising are to encourage desirable actions eg not drinking too much, and to redistribute wealth. The latter reason begs the question of why wealth is maldistributed in the first place.

These considerations make taxes on wages, goods and services look bad in the overall scheme of things, which is why they rate low according to any standards of taxation eg Adam Smith's Canons, which are not a bad starting point.

3:06 am  

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