From: Black Unicorn <unicorn@schloss.li>
Date: Sun, 31 Mar 1996 04:00:01 +0800
To: Cypherpunks <cypherpunks@toad.com>
Subject: Note: Problems Confronting the Asset Concealer [Part 2 of 2 of Volume I]
Message-ID: <Pine.SUN.3.91.960329171657.15388F-100000@polaris.mindport.net>
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(Volume I - Part 2 of 2)



     The Constitution is of No Help.

The asset concealer who hopes to rely on the constitution to protect 
him might wish to consider the view of one noted scholar:

"The Constitution provides little protection for account holders.  
Courts describe the interest of the United States in enforcing its 
laws as overwhelming and the ability of prosecutors to uncover 
evidence of criminal conduct as essential.  That interest usually 
overwhelms any possible constitutional right of a bank customer.  
United States v. Miller rejected the Fourth Amendment's Search and 
Seizure Clause as a basis for a privacy right in bank records."  (Todd 
Jones, Compulsion Over Comity: The United States' Assault on Foreign 
Bank Secrecy, 12 J. Intl. L. Bus. 454), and cases since have followed 
this holding almost religiously.

As discussed briefly above, it is likewise unlikely that the fifth 
amendment will protect the asset concealer to any degree of certainty.  
Several cases have held that fifth amendment rights do not apply to 
banking records or financial information.  Zicarelli v. New Jersey 
State Comm'n of Investigation, 406 U.S. 472, 478 (1972)(Banks and 
other institutions cannot invoke the self incrimination clause of the 
Fifth Amendment); Braswell v. United States, 487 U.S. 99, 102 (1988); 
Bellis v. United States, 417 U.S. 85, 89-90 (1974).  On the fifth 
amendment concerns See Generally, Comment: Sidestepping Foreign Bank 
Secrecy Laws: No Sanctuary in the Fifth Amendment and Little in the 
Interest of Comity, 10 Hous. J. INT'L L. 57, 57 n.1 (1987).

Corporate entities have no Fifth Amendment protection at all by virtue 
of their agent status, Bellis v. United States, 417 U.S. 85, 89-90 
(1974), and more and more such protection is withheld even if the 
corporate entity is a co-defendant.  Braswell v. United States, 487 
U.S. 99, 102 (1988).  Exceptions may exist for those entities which 
are operated as sole proprietorships.  Braswell at 104 citing United 
States v. Doe, 465 U.S. 605 (1984).

The cases following In re Grand Jury Proceedings, 814 F.2d 791 (1st 
Cir. 1987) demonstrate how the fifth amendment has been eroded or 
eliminated in application to this problem.  In the In re case the 
defendant was directed by the district court to sign a consent form 
permitting the disclosure and production by a financial institution of 
documents protected by Singapore banking secrecy law.  On refusing to 
sign, the defendant was held in contempt.  The investigation alleged 
reporting and currency violations.  The defendant appealed to the 
First Circuit which held the signature as both "testimonial" and 
"self-incriminating."  The court reasoned that the consent form 
"amounts to an assertion" that the bank customer consented to 
production of the requested records and that it was "self-
incriminating" because it could be used to demonstrate incriminating 
facts (e.g., that the accounts in the witness's name existed and were 
within the witness's control).  Even at the time, however, this 
decision was in conflict with the Second, Fifth and Eleventh circuits, 
which have held such an order does not violate the fifth amendment.  
(Typically on the grounds that the forms signed were non-testimonial).

Lately, clever prosecutors and private litigants have evaded the 
testimonial hitch entirely by phrasing their consent forms in the 
hypothetical, and not naming specific account names or numbers.  The 
Supreme Court upheld the order of contempt for a defendant refusing to 
sign such a document.  See, Doe v. United States, 108 S. Ct. 2341 
(1988).  The Court noted that the form was carefully drafted not to 
make reference to a specific account, but only to speak in the 
hypothetical.  Compare the unconstitutional language of the In Re 
Grand Jury form:

"I [witness], consent to the production to the [District Court and 
Grand Jury] of any and all records related to any accounts held by, or 
banking transactions engaged in with, [bank X], which are in the name 
of, or on behalf of: [witness], if any such records exist."

with the now constitutional:

I, [witness], of the State of New York in the United States of 
America, do hereby authorize and direct any bank, trust company, or 
other financial institution located outside of the territorial United 
States at which I have or have had an account of any kind, or at which 
any corporation has or has had an account of any kind upon which I am 
or have been authorized to draw, to disclose all information and 
deliver copies of all documents of every nature in the possession or 
control of such bank, trust company, or other financial institution 
which relate to any such accounts, together with a certificate 
attesting to the authenticity of any and all such documents, to any 
agent or employee of the United States Government who presents a copy 
of this Consent Directive which has been certified by the Clerk of the 
United States District Court for the Northern District of New York to 
such bank, trust company, or other financial institution, and this 
Consent Directive shall be irrevocable authority for doing so.  United 
States v. A Grand Jury Witness, 811 F.2d 114 (2d Cir. 1987).

For more examples See also, United States v. Davis, 767 F.2d at 1040 
(holding any problem of testimonial self-incrimination is solved by 
such an order precluding use of directive as admission); In re Grand 
Jury Proceedings, 814 F.2d at 795 (expressly approving of reasoning in 
Davis); United States v. A Grand Jury Witness, 811 F.2d 114, 117 (2d 
Cir. 1987); United States v. Cid-Molina, 767 F.2d 1131, 1132 (5th Cir 
1985); United States v. Ghidoni, 732 F.2d 814, 818 (11th Cir.), cert. 
denied, 469 U.S. 932 (1984); United States v. Browne, 624 F. Supp. 
245, 248 (N.D.N.Y. 1985); United States v. Quigg, 48 A.F.T.R.2d 81-
5953, 5955 (D. Vt. 1981).

Even more importantly, the character of the "documents" themselves, 
public or private, electronic or paper, would seem to be a factor 
courts will refuse to consider.  Fisher v. United States, 425 U.S. 
391, 410-11 (1976) rejecting both an analysis based on the nature of 
documents and privacy as the policy supporting the fifth amendment.

Some protection still exists.  Many jurisdictions refuse to recognize 
"consent" orders signed under judicial compulsion.  See, In re ABC 
Ltd., 1984 C.I.L.R. 130 (1984) (Grand Court of the Cayman 
Islands)(Consent directives compelled under threat of contempt 
sanctions do not constitute consent under Cayman Bank Secrecy Law); In 
re Confidential Relationships (Preservation) Law, Law 16 of 1976, 
Cause No. 269 of 1984 (Grand Ct. Cayman Islands July 24, 1984).

[...]

IV. Esoteric Considerations

     Intelligence threats:

The asset concealer should note that financial institutions have 
increasingly become the target of foreign intelligence operations.  
The IRS has conducted intelligence operations against foreign banks 
extensively in past and the scope of such operations in the present is 
unclear.  From 1965-1975 the intelligence division of the IRS's 
Jacksonville, Florida district conducted operations named "Tradewinds" 
and "Havens."  Both operations were designed to gather intelligence on 
American investors in offshore banking entities, and expose potential 
tax evasion and criminal activity.  Several IRS agents testified on 
the operations before the House Committee on Government Operations in 
the First Session 94th Congress, 1975.  In 1965, when the Bahamas 
enacted its bank secrecy legislation criminalizing the release of 
banking information, the IRS turned to paid informants within the 
banking community to elicit information about the banking activities 
of U.S. citizens, a tactic that violated Bahamian law.  The most 
dramatic of these was the "briefcase caper," wherein a female IRS 
informer "entertained" a Bahamian banker while her accomplice 
photocopied the contents of his briefcase. United States v. Payner, 
434 F. Supp. 113 (N.D. Ohio 1977), rev'd, 447 U.S. 727 (1980)  The IRS 
finally ceased the operation in 1975 when it admitted that it had 
obtained information in violation of federal law.

The IRS has also shown a propensity for illicit information gathering 
from the mails.  At one time in the late 1960s, the IRS combed through 
mail to identify those U.S. citizens who received mail from Swiss 
Banks.  Though most Swiss banks at the time mailed their customers 
using unmarked envelopes, the IRS aggressively pursued traffic 
analysis in the mails.  Agents from the IRS mailed inquires to several 
Swiss banks and recorded the number of the postal meters used to 
respond.  These collected numbers were matched against international 
mails using high speed copiers at the port of entry and those matching 
the postal meter numbers were audited at "random."  The practice was 
later upheld in United States v. Leonard, 524 F.2d 1076, 36 (2nd Cir. 
1975) cert. denied, 425 U.S. 958 (1976), and some 150 taxpayers were 
prosecuted.  Generally speaking, the Supreme Court has upheld the use 
of illegally obtained information in tax cases in United States v. 
Payner, 447 U.S. 727 (1980).

Given the success of the IRS operations ($52,000,000 at a cost of 
$1,500,000 according to the hearings on Tradewinds and Haven) it is 
difficult to imagine that these methods have been entirely abandoned.  
Moreover, the asset concealer should recognize that today private 
litigants have access to the most professional intelligence services 
themselves.  Organizations like The Investigative Group, Inc., Kroll, 
Pinkerton, and Control Risks, Inc. have recruited former investigative 
and intelligence professionals aggressively and offer their services 
to private litigants as a matter of course.  Given the forgoing the 
private banking option, below, becomes more and more attractive.

Pressure from the IRS alone is not the only concern that asset 
concealers might wish to consider.  Congress has more than once called 
for sanctions against banks that do not bow to the wishes of the 
United States.  Staff of Senate Subcomm. On Narcotics, Terrorism and 
International Operations, 101st Cong., 2d Sess., Drug Money 
Laundering, Banks and Foreign Policy 32 (Comm. Print 1990)  Given 
this, the serious asset concealer should consider using banks that 
hold no assets in the United States, and which do not conduct normal 
banking business in the United States, as these assets, or the banking 
charter generally, could easily be suspended, frozen, or revoked.

[...]

     The Anatomy of a Money Laundering Investigation

[...]

     Private banks

The asset concealer may also wish to consider the option of a private 
bank.  Private offshore banks provide individuals or small groups of 
investors with their very own financial institution.  This, of course, 
reduces the number of individuals with access to banking information, 
allows for the more direct control of records, and all but eliminates 
the potential for coercion of a large banking parent.  In addition, 
private banks create a captive source of loans for investors, provide 
additional funds at interbank rates, allow the payment of interest tax 
free, the participation in tax free international underwriting, assist 
clients in international trusts and corporation formation, and 
eliminate many overhead costs of banking.  If one can balance the 
costs and government fees of forming such a bank, they are the most 
secure and direct method of asset concealing.

Asset concealers who wish to pursue this option would do well to keep 
in mind that their choice of corporate form for their financial 
institution will impact their fifth amendment protections.  Braswell 
v. United States, 487 U.S. 99, 102 (1988)(Normal rule stripping fifth 
amendment protections from financial institutions refusing to comply 
with compelled discovery orders even when named as co-defendants may 
not apply for those entities which are operated as sole 
proprietorships).

In the cases of securities related charges, where at one time charges 
could be filed solely on the basis of the defendants invocation of the 
fifth amendment in reference to questions about the existence of 
foreign bank accounts of financial dealings, in the absence of a 
direct connection, such an assertion alone is no longer enough to 
warrant an action.  See Comserv Corp., 698 F. Supp. at 789. (Absent 
other evidence assertion of Fifth Amendment privilege is "not a 
sufficient basis for the SEC's action." Id. See also Pagel, Inc. v. 
SEC, 803 F.2d 942, 946-47 (8th Cir. 1986)(citing Baxter v. Palmigiano, 
425 U.S. 308, 317 (1976)).

Until around 1965, establishing banks in the Bahamas and other islands 
was simple.  Forming a normal corporation and granting it banking 
powers was about the extent of the efforts required.  The Bahamas 
eventually tightened restrictions and while there are still over 350 
banks on the island, establishing new entities is more difficult 
today.  The Cayman Islands followed suit in 1966, enacting legislation 
virtually identical to that of the Bahamas.  Additional legislation 
passed in 1989 modifies some of the 1966 rules.

While a "bank" is nearly impossible to organize in Bermuda today, 
finance companies can be organized to conduct some quasi-banking 
activities.  The most attractive, and least regulated of the major 
jurisdictions today are Turks and Caicos, and Vanuatu.  Turks and 
Caicos, while regulating "banks" a bit more strictly, allows almost 
unregulated formation of trust companies.  Vanuatu permits the 
formation of exempted banks, making it perhaps the most attractive 
jurisdiction for the asset concealer interested in forming his or her 
own financial institution.  To some extent is it possible to form a 
financial institution in Switzerland, but this has become increasingly 
difficult, and the highest standards for capital pay in and reputation 
make it prohibitively restrictive for most asset concealers.

Jersey, Luxembourg and Guernsey are other options, but all still 
impose strict regulations on the formation of new banks.  Luxembourg 
requires that the banking business be conducted locally, that the new 
bank be sponsored by two well established banks, and that at least 350 
million Lux.F. be paid in prior to formation.  Panama still allows 
offshore bank creation with limited fees and a low paid in capital 
requirement of $250,000 which must be deposited locally.  New banks 
must generally be backed by large and reputable banks.  I remain 
suspicious of actual banking activities in Panama, however, 
considering the increased U.S. presence in the country since the 
ousting of her former dictator.

Netherland Antilles also allows formation of offshore banks which are 
generally treated like investment companies.  Offshore banks can be 
granted a flat tax of 6% on income and require only a 20% pay in of 
the capital requirement which is NAf 1 million.  (1NAf=$0.56 at the 
time of this writing).  Nauru permits offshore banks but a reputation 
requirement often prevents novice applicants from easy approval.  
Nauru does, however, have very low licensing fees, which are usually 
not more than normal trading or holding corporations.

Shell banks (those without substantive assets of any kind) were 
popular until 1977.  They required no paid in capital and were 
commonplace in Anguilla and St. Vincent.  While technically such 
institutions no longer exist, some of the smaller jurisdictions have 
difficulty enforcing their capital and debt-equity ratio requirements, 
often creating "effective" shell bank opportunities after an initial 
showing of capital which is later removable.  For the prudent asset 
concealer, however, shell banks will present a less than desirable 
alternative to meaningful bank licenses in legitimate jurisdictions.

My own views aside, conventional wisdom holds that offshore banks are 
best formed in the Bahamas and Cayman Islands.  Both of these 
jurisdiction's license applications can exceed 100 pages.  Directors 
are generally required to offer proof of bona fide banking experience, 
officers, managers and shareholders required to make disclosures, and 
references checked.  In many cases, as with Vanuatu for example, 
stand-ins for officials, directors and managers are available through 
local trust services.  Initial capital statements are typically 
audited.  Paid in capital requirements are usually $250,000 or more.  
The Cayman Islands and other jurisdictions allow substitution of 
capital for guarantees from reputable banks or trust companies.  
Almost every jurisdiction requires annual license fees.

[...]

See Generally, Peat Marwick's numerous publications.

       Using Private Banks to your Advantage

[...]

       Bearer Shares

Bearer shares are an immensely useful tool to the asset concealer.  
Bearer shares are certificates of equity ownership which are freely 
transferable and embody full ownership rights to the holder.  They do 
not bear the name of the shareholder or beneficiary and are not 
registered.  Bearer shares are generally numbered certificates with 
removable serialized coupons attached which can be exchanged for 
dividend payments, much like bond coupons.  Bearer shares with voting 
rights are generally tallied by deposit with a designated bank in 
exchange for corporate voting ballots issued by the bank before 
shareholder meetings.  Because Bearer shares are not registered, and 
entitle the holder to the full benefits of ownership, and because 
dividend coupons are detachable, a stockholder in the corporation can 
be completely anonymous and a distinct entity from those entitled to 
dividend payments.

Typically on formation trustees accept bearer shares in the 
corporation and later pass them to the actual shareholders who may in 
turn separate the dividend rights, transfer the shares, or both, to a 
third party.  In this manner the ownership of the corporation is 
almost entirely shielded.  Antigua, Barbuda, Liberia, Liechtenstein, 
Luxembourg, Nauru, Netherland Antilles, Panama, Switzerland, and Turks 
and Caicos all permit bearer shares, as do Cayman and Vanuatu for 
exempted companies.

V. Reviews of Specific Jurisdictions

     Why I don't like Switzerland anymore

Not obscure enough.  Spineless.  Switzerland has, perhaps for 
legitimate reasons at first, attracted a tremendous amount of 
attention as a banking secrecy jurisdiction.  The astute asset 
concealer will avoid such jurisdictions where possible as they tend to 
attract suspicion and law enforcement attention.  For example, a 1981 
study by Swiss National Bank and the public prosecutors office 
attributed 26 kidnapping incidents in 1970 and 1978 to Swiss money 
laundering elements in the ransom demands.  (Massnahmen gegen 
"Geldsauberung," Neue Zurcher Zeitung, (NZZ) May 9/10, 1981, No. 106 
at 9).  High profile customers in Swiss banks have attracted so much 
public attention as to make the jurisdiction extremely high profile.  
See, e.g., N. Schmid, Banken Zwischen Legalitat Und Kriminalitat 189-
191 (1986) (King Faisal of Iraq, King Faruk of Egypt, Algerian 
Liberation Front, Ex-Shah of Iran Pahlevi, and Presidents of 
Argentina, Kongo-Katanga, Nicaragua); Internationale Rechtshilfe - 
Gefahr fur das Bankgeheimnis, NZZ, Aug. 30, 1989, No. 200 at 21 
(Marcos, Irangate, drug mafia); The Lifestyle of Rich the Infamous, 
FORTUNE, Dec. 2, 1988, at 38 (tax fugitive Marc Rich).  Cf. 
Nationalrat will scharferen Geldwascher-Artikel, Tages-Anzeiger, Nov. 
28, 1989, No. 277 at 9 (statement of member of Swiss House of 
Representatives)("...no country can point to as many illegal banking 
transactions as Switzerland").

In 1977 a private agreement between the Swiss Bankers' Association 
("SBA") and member banks of the SBA took effect.  The agreement 
establishes a duty of due care in the identification of potential 
account holders and depositors and is intended to reduce the incidence 
of rampid criminal activity through Swiss banks.  (Vereinbarung uber 
die Sorgfaltspflicht bei der Entgegennahme von Geldern unde die 
Handhabung des Bankgeheimnisses)(VSB 1977).  In addition, the Bankers' 
Agreement contains a stipulation that depositors wishing to trade on 
United States securities markets are required to waive their rights to 
secrecy as a condition to trading.  The SBA provides in detail for SEC 
investigations into securities violations involving Swiss banks.

The "Lebanon Connection," was the scandal that most turned the tables 
on Swiss banking secrecy.  (Allegations that several of Switzerland's 
major banks assisted Turkish-Lebanese drug ring over in the laundering 
of proceeds totaling over 1.6 billion francs.  Taglich eine Million 
Dollar gewaschen, Graber, Geldwascherei 42 (1990).  See also, 
Wichtiger als Geldwascher bestrafen ist die Verbrecherorganisation 
treffen, Tages-Anzeiger, Nov. 12, 1988, No. 265 at 33 (Lebanon 
Connection largest Swiss money laundering scandal to date); 
Geldwascherei: Dampf aufgesetzt, Schweizerische Handelszeitung (SHZ), 
Nov. 10, 1988, No. 45 at 17 (Illegal drug profits entered Switzerland 
on daily basis via couriers carrying briefcases filled with dollar 
bills in small denominations).

Immediately after, the Swiss Federal Council (Bundesrat) streamlined 
the typically lethargic elements of Swiss legislative efforts to 
criminalize money laundering, and the new legislation was approved by 
the Swiss Parliament to take effect August 1, 1990 P. Bernasconi, 
Grenzueberschreitende Wirtschaftskriminalitat, 83 Schweizerische 
Juristische Zeitung (Sjz) 73, 82 n. 24 (1987).  Cf.  P. Forstmoser & 
A. Meier/Hayoz, Einfuhrung in das Schweizerische Aktienrecht 329 (4th 
ed. 1989).  Under the law, money laundering crimes are punishable by 
imprisonment for up to five years and by fines of up to one million 
Swiss francs.  (Scweizerisches Strafgesetzbuch, Code Penal Suisse, 
Codice Penale Svizerro, art. 47, 273).  Because the Mutual Assistance 
Treaty with the United States permits release of banking records to 
the United States in the event the activity is illegal in both 
countries, it would seem that money laundering investigations will 
grant prosecutors the right to request, and obtain Swiss banking 
records.

Switzerland has gone on to eliminate the "Form B" account.   
(permitting a proxy to vouch for the depositor, and effectively making 
the account anonymous subject to the proxy's trustworthiness.   Swiss 
Bankers Ass'n, Convention de Diligence Banquers, Form B (1987)).  As 
of April 25, 1991 Swiss banks are now required to record the identity 
of the beneficial owner of depositor accounts, leaving a wider paper 
trail for U.S. prosecutors.  According to one commentator, "In short, 
the United States now has an extremely powerful vehicle with which to 
pierce the veil of Swiss banking secrecy..."  Kanwar M. Singh, Nowhere 
to Hide: Judicial Assistance in Piercing the Veil of Swiss Banking 
Secrecy, 71 B.U.L. Rev. 847.

Even given the legislative tendency to erode Swiss secrecy, one must 
understand that the image Swiss banking secrecy has been much inflated 
in public opinion.  Swiss banks have become very conscious and wary of 
indiscriminately opening accounts which may be the subject of illegal 
funds receipt.  Swiss banks are increasingly reluctant to open new 
numbered accounts.  "Coded" accounts are typically granted only to 
current customers.  Truly "anonymous" accounts do not exist at all in 
Switzerland.  Instead, numbering is directed to avoid internal 
violations of banking secrecy and problems along the line of the 
Bahamas "briefcase caper." Honegger, Demystification of the Swiss 
Banking Secrecy and Illumination of the United States Memorandum of 
Understanding, 9 N.C.J. Int'l L. & Com. Reg. 1, 17 (1983).  In fact, 
contrary to popular belief, purely anonymous accounts do not exist at 
all in Switzerland. H. Bar, The Banking System of Switzerland 61 
(1957).  At the very least one or more senior bank employees will know 
the depositor's identity.  Even in the case of Form B accounts, 
records of depositors were typically kept privately by higher 
officials in the bank.

When taken as a whole, the legislature's specific indication of its 
willingness to erode the protection of banking secrecy in Switzerland, 
the pending legislation, interest in EU membership, acceptance of the 
European Convention on Money Laundering, four other anti-secrecy laws 
recently passed in Switzerland along with the more intrusive internal 
policies of Swiss bankers, my interest in Switzerland as an asset 
concealing jurisdiction is much eroded.  See Generally, Rebecca G. 
Peters, Money Laundering and Its Current Status In Switzerland: New 
Disincentives for Financial Tourism, 11 J. Intl. L. Bus. 104 (1995).

For a defense of the current status of Swiss banking secrecy, however, 
See Paolo S. Grassi and Daniele Calvarese, The Duty of Confidentiality 
of Banks in Switzerland: Where it Stands and Where it Goes. Recent 
Developments and Experience. The Swiss Assistance to, and Cooperation 
with the Italian Authorities in the Investigation of Corruption Among 
Civil Servants in Italy (The "Clean Hands" Investigation): How Much is 
Too Much?

     Why I like Panama.

At one time, Panama was regarded as the leading tax and securities 
trading haven in the Western Hemisphere.  3 W. Diamond & D. Diamond, 
Tax Havens of the World, at Panama-1 (1989).  While the political 
upheaval and overthrow of Manuel Noriega have changed much, many 
aspects of Panamanian law remain friendly to the asset concealer.

Panamanian corporations have no minimum capital requirement, and 
registered shares are not required to be completely paid in.  While 
corporate law requires two shareholders for the purpose of electing a 
board of directors, (which can consist of only three persons, none of 
whom must own shares), after the board is elected the corporation may 
be reduced to one shareholder.  Ownership can be effectuated through 
bearer shares if they are fully paid in, and there are no citizenship 
requirements except for the appointment of a resident agent, who is 
generally the incorporating agent.

"Bearer shares" are well entrenched in Panamanian law.  They allow 
corporate ownership to be shielded quite effectively from 
identification by permitting the corporation fully transferability in 
private face to face transactions of nothing more than the corporate 
share certificates.  Typically, an agent handles incorporation, and 
exchanges the bearer certificates with the principal, who then may 
even exchange it with a second principal, completely shielding the 
final holder of the corporation from identification by the agent 
absent the cooperation of the first principal.  Bearer shares will be 
discussed more fully below.  In addition, Panama continues to maintain 
strict banking secrecy laws and no taxation of income produced from 
sources outside the country.  Large investors may enjoy the benefits 
of extensive  investment and capital incentives.  Banking Law of 
Panama, Law No. 16, Arts. 2-4 (Jan. 28, 1959).

These arrangements have particularly suited Panamanian corporations 
for discrete, indeed totally confidential, securities trading on U.S. 
markets.  Many traders have used Panamanian corporations extensively 
in this regard, and even where the existence of the corporations and 
their complicity in insider trading has been established, few 
investigations have been able to bear the burden required to secure 
convictions.  See, e.g., SEC v. Levine, Civ. Action No. 86-3726 
(S.D.N.Y. filed May 12, 1986)(alleging defendant Levine made 
securities trades based on inside information through two Panamanian 
corporations beneficially owned and controlled by Levine) In re Joseph 
A. Lugo, Admin. Proc. File No. 3-6740 (Lexis, Securities library, 
Releases file)(May 10, 1988)(Panamanian bearer stock corporation 
involved in scheme to defraud investors); SEC v. Palmer Fin. Corp., 
Litigation Release No. 12,082, 43 SEC Docket 1230 (D.D.C. May 3, 1989) 
(violations of Sections 13(d) and 16(a) of the Exchange Act).

The combination of opaque ownership anonymity and non-cooperation with 
authorities even in criminal investigations makes Panama the ideal 
first tier expatriation jurisdiction, and an excellent re-investment 
vehicle.

Panama's entities will be discussed in more detail in the second 
"implementation case study" section below.

     Why I like Liechtenstein

I must disclaim my passage here by disclosing that I am personally 
involved in business, banking, and government in Liechtenstein.

Despite her neighbor's less than favorable bent, Liechtenstein remains 
a powerful jurisdiction for the asset concealer.  The primary vehicle 
employed is typically the Liechtenstein Anstalt, but Foundations and 
general trusts are also exceptionally effective.

Unlike Luxembourg and Dublin, Liechtenstein, by virtue of her disdain 
for EU membership, will not be burdened by the proposed standard EU 
withholding tax to which even Switzerland and the Channel Islands may 
eventually be subject.  Though the Channel Islands and the Isle of Man 
are technically outside the EU area, many point to their presence 
within the "sterling area" as dangerous with regard to the proposed 
tax's reach.  Liechtenstein is also much easier to reach than most 
island offshore havens.

Perhaps best of all, foreign judgments, except in Switzerland or 
Austria, are not enforceable in Liechtenstein.  Private plaintiffs 
will waste their time seeking local assistance in attaching assets.

       Liechtenstein Entity Forms

       The Anstalt

The Anstalt or "Establishment" is a corporation which is more 
accurately characterized as a international holding corporation.  
Typically financial or controlling interests in foreign corporations 
and other entities are left in the care of an Anstalt and thus in the 
jurisdiction of Liechtenstein.  In many ways Anstalts function much 
the way that conventional trusts do.  An Anstalt can be founded with 
only one "founder" or "promoter" who is typically an agent local to 
Liechtenstein acting for an anonymous owner.  The local agent holds 
the charter of ownership on the Anstalt, which is the only record of 
the actual beneficiary of the entity, and can be made a bearer 
document.  Owners of Anstalts enjoy advantages such as: Thirty year 
tax rate freezes, no mandated debt-equity ratio, liability limited to 
assets, and extremely low taxation.  Some 70,000 Anstalts exist, 
though the precise number is a closely held secret (to avoid any 
attempt at process of elimination guesswork).  There is a one time fee 
to establish an Anstalt, generally SwFr 1,000 or 3% of the starting 
capital, and a yearly tax on net assets of the greater of 0.1% or SwFr 
1,000.  Dividends are taxed at 4%.  A minimum capital requirement of 
SwFr 30,000 exists for Anstalts, but can typically be waived.  
Taxation is more complicated for commercial entities in Liechtenstein, 
and auditing requirements apply, but generally taxation falls within 6 
to 18%.  There are no reporting requirements for Anstalts which do not 
themselves conduct commercial activities.

Some problems with the Anstalt still remain.  Anstalts, like 
Panamanian corporations, are generally bearer certificate owned and 
easily transferable as a result.  Because of this, and the fact that 
most Anstalts are single owner entities, asset disputes can result if 
the bearer document falls into the wrong hands.

       The Treuunternehmen

Treuunternehmens or "Trust Enterprises" are modeled after the 
Massachusetts trust and are generally unlimited as to its structure.  
Offshore activities, while better left to other jurisdictions in 
general, can be best effected through Treuunternehmens.  

       The Stifung

For the wealthiest clients, the security of Liechtenstein's 
foundations (Stifungs) are unparalleled, even in the offshore world.  
While establishing a Stifung requires a due diligence finding by the 
trustee or founding attorney of the client's general good character, 
the disposition of the funds applied after the founding of a Stifung 
will be unscrutinized.  Stifungs require a separate offshore holding 
company for administration, have a board of directors, and a 
trustee/attorney.  The beneficiary is known only to the directors, and 
the attorney.  Like Anstalts and Treuunternehmens, Stifungs offer 
limited liability.  Stifungs can be best described as autonomous funds 
without corporate structures.

Stifungs too have some cautionary notes attached.  The director of a 
Stifung may take a narrower view of the distributions of assets than 
the original founder originally intended.  As directors are usually 
singular in Liechtenstein Stifungs, there is no recourse to 
disgruntled beneficiaries.  Of course, these problems are easily 
solved if a close and trusted person can be appointed as the founder.  
Many trustees suggest the original founder's successor be appointed 
automatically on the death of the former.  Additionally, paying out on 
the entire net worth of the Stifung tends to assure the correct 
ownership attribution.

All of these entities are perfect for the asset concealer who wishes 
to stand before a local court and deny ownership of additional assets.  
In addition to being technically true of the beneficiary of an Anstalt 
or Stifung, it has the additional advantage of being entirely 
uncontradictable.  Anstalts can be in bearer form, and Stifung 
founders are typically trustees.  A measure of the frustration of U.S. 
regulatory and prosecuting authorities in tracing the owners of 
Anstalts can be seen in the slew of U.S. proceedings with similar case 
names.  e.g., SEC v. Certain Unknown Purchasers, No. 81-Civ-6553 
(S.D.N.Y. July 25, 1983)

       The Aktiengesellschaft

Aktiengesellschafts, "Share Companies," or "Stock Corporations" are 
primarily Anstalts for larger number of beneficiaries, and provide 
more complicated vehicles for share distributions and stricter 
internal board requirements.  They also have an initial capital 
requirement of SwFr 50,000.  Bearer or registered shares are 
permitted.  Shares may be held by nominees.  Aktiengesellschafts are 
required to keep proper books, appoint qualified auditors, and submit 
balance sheets to Liechtenstein tax authorities.

While holding corporations are a simple matter to establish, less than 
savory investors will have difficulty with direct banking.  
Liechtenstein has been conscious of her international reputation, and 
generally more fussy about her banking clients.  Those depositors with 
less than SwFr 250,000 will be unable to expect much personal 
attention even if bankers will generally not turn away small 
depositors.  Depositors with SwFr 1,000,000 or more can expect fuller 
service banking services including portfolio advice.  Depositors with 
SwFr 3,000,000 can expect completely individualized service, including 
discretionary management by multiple fund managers directed to the 
client's individual needs.  Forming individual financial institutions 
is extremely difficult.

       Secrecy

Generally, Liechtenstein enjoys much more potent secrecy than her 
neighbor Switzerland, but because this has been somewhat eroded by 
international money laundering agreements and exceptions for criminal 
enterprises, she is a better reinvestment and shell management vehicle 
than expatriating entity.

The SEC's own Mr. Haberman commented once on Anstalts, "We've traced 
stuff to Anstalts in the past and then couldn't get anywhere - where 
the money came from, who the beneficiaries were, nothing."  Indeed, 
even where the ownership of the Anstalt is "obvious," proving it in 
court without the charter documents or extensive showings of financial 
information is all but impossible.  The combination of a Liechtenstein 
Anstalt as an umbrella for offshore corporations in other 
jurisdictions and bank accounts in a separate, potent banking secrecy 
jurisdiction is thus an excellent concealing combination.

Criminal activities, particularly drug related, are likely to remove 
the veil of secrecy, but unlike Switzerland, Liechtenstein's bankers 
have not explicitly adopted the SBA's 1982 "due care" agreement.  
Secrecy in regard to tax matters is as absolute as can be found 
worldwide.  Liechtenstein and her financial institutions will under no 
circumstances whatsoever render any assistance to tax authorities.  
Assistance in criminal matters, even in light of the recent money 
laundering compact, is limited to those cases where the activity in 
question reflects badly on Liechtenstein as a financial center.  
Criminal investigation assistance under the Legal Assistance Act 
expressly provides for natural and legal entity secrecy even in 
cooperation with foreign authorities unless the crime in question is 
also illegal in Liechtenstein.  Assistance in the case of criminal 
charges stemming solely from tax evasion or currency infringements and 
related offenses will be curtly denied.

The 1992 provisions criminalizing drug-trafficking 
(Betaaubungsmittelgesetz). provide for five year sentences for those 
acting to hinder the discovery or retention of assets related to 
illegal drug production, distribution, storage, etc.  1995 provisions 
adopting Europe's convention against money laundering expands the 
exceptions to banking secrecy to proceeds having their origin in any 
sort of criminal offense which is also illegal in Liechtenstein.

Lawyers and trustees have a right of silence in any administrative or 
judicial proceeding, and secrecy is expressly written into statutes in 
several places.

Liechtenstein is best used as a tax shield and post expatriation 
umbrella for asset reinvestment rather than initial expatriation.

For a detailed treatment of Liechtenstein Laws with regard to insider 
trading, See, Emmanuel Gaillard, Insider Trading: The Laws Of Europe, 
The United States And Japan, 1992.  For a critical look at 
Liechtenstein secrecy entities, See, Liechtenstein's Uncertain 
Foundations, Anatomy of a Tax Haven, UE Ramati, Hazlemore Ltd Tax 
Publications, Dublin.

     Why I Like (sort of) The Cayman Islands

While the Islands have attracted increased law enforcement attention 
of late, they remain very attractive as a base for offshore 
corporations.  Cayman typically implies no-direct taxation, is not a 
party to any tax treaties, and grants exceptionally secure assurances 
against future increased taxation.  Cayman has excellent 
telecommunications systems, offers direct dialing to offshore 
locations and remains on eastern standard time all year long.  
Government fees are the greatest burden to the asset concealer.

The real hitch in the Caymans is the mutual legal assistance treaty 
between the United Kingdom and the United States.  The treaty provides 
for information sharing in those instances where crimes are mutually 
recognized.  This, of course, excludes tax related offenses if they 
are not connection with otherwise criminal activity.  Investigations 
into narcotics trafficking activates a more liberal agreement which 
gives the U.S. Attorney General direct access to otherwise 
confidential information regarding Cayman Islands account holders.

       Entities in the Caymans

Every Cayman company is required to keep a register of its directors, 
officers, mortgages, charges, and shareholders.  Exempted companies 
may keep their registers anywhere in the world, others must keep it 
locally.  Exempted companies are not required to disclose any of their 
shareholders publicly.

Cayman corporations are divided into three types.  Local companies, 
exempted companies, and nonresident companies.  Local companies are 
permitted to conduct business in the islands.  Exempted companies are 
the general vehicle used to conduct offshore business and while they 
may use a local office to do so, they may not themselves conduct local 
business.  Nonresident companies are less flexible than exempted 
companies, but are less expensive to form.

Companies can typically be formed in one to two days and the documents 
are fairly simple.  Nearly 2,500 new companies are formed every year 
in the Caymans, offering the asset concealer ample opportunity to be 
lost in the crowd.

Exempted companies are granted a 20 year stay on taxes of any kind.  
Unlike non-resident companies, exempted companies can issue bearer 
shares, no par value shares, and need not include "Limited" or "Ltd." 
as part of their business name.

Directors of exempted companies must hold at least one meeting a year 
locally but alternate directors are permitted and often trust company 
stand-ins are used.  While exempted companies can have a single 
shareholder, nonresident companies must maintain 3 or face personal 
liability of the shareholders for company debts.  Exempted companies 
cannot invite Cayman citizens to hold shares or debentures, though 
unsolicited share and debenture purchases are permitted to them.

       Private Banking

Cayman is particularly useful, even given the criminal legal 
assistance treaties, in its ease of banking entity establishment.  
More than 500 licensed banks exist on Grand Cayman, and several trust 
companies have been formed in the last decade.  Banks and trust 
companies must be licensed by the Governor and Executive Council.  
Class A licenses permit local and offshore operation, and Class B 
licenses permit only offshore operation.  Multinational corporations, 
families, and even individuals with "clean" credentials have been able 
to obtain licenses for banks and trust companies in the Caymans 
without much difficulty.  Unrestricted Class B licenses have a capital 
requirement of about $500,000 with a 100% pay in requirement, though 
portions may be guaranteed.  It is possible, in some circumstances, to 
obtain a restricted Class B license with less capital.

Class A licenses cost $50,400 per year, while Class B licenses a mere 
$15,120.  Setting up an offshore bank in Cayman should be possible 
with $40,000 and $25,000 per year.  Quarterly financial statements are 
required and while annual financial statements must be audited, they 
need not be published.  Class B licenses are generally eligible for a 
20 year guarantee against taxes.  Restricted Class B licenses are also 
available, but these can be hard to come by.  Restricted licenses 
limit the number of depositors, and the undertaking which the bank may 
involve itself with.  Usually a filing with the authorities is 
required.  As the cost of obtaining an unrestricted Class B license is 
essentially the same, it is not usually worth the extra effort to 
pursue a restricted license.  Cayman banks of all flavors can be owned 
by a single shareholder, and contracting with local banks to operate 
facilities and lend personal are both permitted.  Typically trust 
companies charge between $15,000 and $25,000 per year for such 
services.

[...]

Government fees are the most plaguing obstacle to the asset concealer.  
If prices continue to increase, it may be beneficial to seek other 
jurisdictions in which to conduct ones activities.  Despite expense, 
Cayman is still an excellent place to establish an offshore investment 
company, a bank or financial institution, captive insurance company, 
or offshore trust.

     Why I Like Vanuatu

The pacific island nation of Vanuatu was at one time a condominium 
administered by France and the UK.  Currently, Vanuatu, formerly 
called The New Hebrides, is a Republic with a multi-party democracy 
and regular elections.  Under the British, Vanuatu adopted many of the 
aspects that today make it an interesting asset concealing 
jurisdiction.  Vanuatu has a balanced budget, a balance of payment 
surplus, no or almost no public debt and low inflation.

The government has explicitly endorsed tax haven type policies and 
even the opposition parties seem uninterested in rocking the boat.  
Australia, however, has tightened regulations on her citizens who 
transact with Vanuatu.  Australian citizens must now file a "taxation 
clearance certificate" with local authorities before conducting 
business with Vanuatu.  Taxation Administration Act, section 14C 
(Australia)  In practice, such certificates are virtually impossible 
to obtain.

The great advantage of Vanuatu is the saturation of tax-haven 
participants.  Local financial, legal and accounting services have 
been so successful and numerous, that a flurry of merger and 
acquisition activity has resulted in the consolidation of several 
entities.  The result has been increased stability in these areas.

There is no registration requirement for trusts in Vanuatu, so there 
is no official account of their number, though it can assumed to be 
large as several large trust companies, some captives of major 
worldwide trust companies or banks, work actively on the islands.  
Offshore exempted (secret) companies number 650+.

       Bearer Shares

Exempted companies in Vanuatu are "secret" and disclosure of financial 
or ownership information is punishable by a fine of VT100,000 or 
imprisonment of up to 12 months.  (1VT=$0.009 at the time of this 
writing).  Companies Regulation 1971, section 416.  While non-exempt 
companies require public filings of ownership, in practice this is 
often circumvented by trust ownership and registration in the names of 
the nominees.

Warranted bearer shares can only be issued by non-exempt companies and 
must be fully paid in.  Companies Regulation 1971, sections 38(a), 93.

Perhaps most importantly there are no taxes what so ever on capital or 
corporate profits.  As a result there are no double taxation treaties, 
and hence no provisions for information sharing whatsoever.  The 
obscurity of Vanuatu makes this one of the most impenetrable offshore 
centers around.

Banking does not permit coded accounts, or accounts in pseudonyms, 
although practically there are few if any checks on identity for 
depositors.  Local trust companies make these restrictions effectively 
unimportant, as nominee services are readily available to assure more 
potent account secrecy.

New companies can be very quickly set up in Vanuatu.  Three working 
days turn around time can be expected if an application is filled out 
in detail and in advance.  While off the shelf companies are not 
"available," in practice abandoned, unwanted, unused, or idle 
companies can often be purchased from local vendors.

Corporate forms in Vanuatu follow the Cayman Islands and Bahamas 
models.  The result is an excellent offshore style legal framework.

Companies in Vanuatu may be limited by shares, by guarantee, or 
unlimited.  They may be private, (if the articles impose: self 
restricted transfer of shares, members number less than 50, and a 
prohibition on public subscription for shares or debentures), or 
public.  For the asset concealer, the private company is the most 
useful.

Exempted companies are not permitted to own shares in non-exempt 
companies, own interest in any local undertaking, allow public 
subscriptions to stock or debentures, or conduct any business with any 
non-exempt company.

Any local judicial proceedings involving exempted companies in Vanuatu 
will be held in camera, and public records of the proceedings will not 
be recorded.

Technically speaking, a Vanuatu corporation is required to have issued 
and paid two shares in the minimal amount of VT1/share.  No formal 
requirements as to shares is actually required and shares with no par 
value at all may be issued by unlimited companies.  Exempted companies 
need only have one director and a separate secretary.

       Private Banks

The real gem of Vanuatu, however, is the ease with which the asset 
concealer may create a banking company.

Financial institutions in Vanuatu must be licensed and must have a 
minimum paid in capital of VT12.5 million if the head office is in 
Vanuatu, and VT50 million otherwise.  There is an annual license fee 
of VT300,000.  Reserve fund and liquid asset minimum holdings are 
enforced, and banks or financial institutions may also be exempted if 
they conduct no local business except with related entities and 
exempted financial institutions and banks are not subject to many of 
the stricter regulations imposed on non-exempt entities.  Unlike 
almost any jurisdiction, financial institutions may be exempted.  This 
is a powerful tool for asset transfer, privacy and concealment.  
Exempted banking entities are afforded a good deal of flexibility in 
their minimum capital requirements subject to the approval of the 
Registrar.  There are no reserve or equity ratios imposed on exempt 
banks.  Most interestingly, local trust companies are in the habit of 
providing all staff, local directors, attorneys, and required personal 
for exempted banks.  Some beneficial ownership and audit requirements 
are in force, but exempted financial institutions and banks can expect 
full confidentiality as a matter of course and lax enforcement.

Combined with the complete absence of currency controls, Vanuatu is 
nearly the perfect jurisdiction for those asset concealers interested 
in founding their own private financial institution.

[...]

See Generally, Vanuatu Companies Regulation 1971, Vanuatu Banking 
Regulation 1970, Vanuatu Trust Companies Regulation 1971.


(Continued in Volumes II, III, and IV)

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