Money laundering in offshore jurisdictions
The vulnerability to money laundering in any jurisdiction should be considered in light of the effectiveness of the laws, the political will and resource available to enforce them
Many offshore jurisdictions are comparable to those of the onshore jurisdictions
Secrecy laws and confidentiality provisions
Some offshore jurisdictions are subject to secrecy laws or confidentiality provisions and this can make it difficult to achieve cross border exchange of information for the purposes of preventing or detecting money laundering
The FAFTs mutual evaluation report explained how the laws in Luxembourg are lifted to certain authorities but not their Financial Intelligence Unit, the unit that receives suspicious activity reports
Financial Intelligence Unit:Any central, national agency responsible for receiving (and as permitted, requesting), analysing and disseminating to the competent authorities, disclosure of financial information
SARs are analysed very thoroughly before reporting to the FIU, for fear of prosecution for violating professional secrecy, the penalty for which is higher than the penalty for failing to file a SAR
Laws such as these will inevitably hinder transparency as they prevent information about suspicions from reaching the FIU and the laws may be invoked against an FIU, preventing them from investigating reports received
Asset protection legislations
Offshore jurisdictions often have legislation which ensures that the assets within a structure can only be attacked by action in local courts
This makes it considerably more costly and complex for authorities outside of the jurisdiction to make such an attack, although reputable offshore jurisdictions will not protect criminally derived funds
Products and services
OSPs will avoid activities that present a higher risk of the organisation becoming involved in a money laundering arrangement
Many products that are widely available onshore and offshore can be used to launder money including insurance products, bank accounts and investment schemes
The products that considerably increase the vulnerability of offshore jurisdictions to money laundering can include the extensive use of legal persons, including companies, foundations and the Liechtenstein Ansalt and the extensive use of legal arrangements
Liechtenstein Ansalt: A form of legal entity peculiar to Liechtenstein which has no members or shareholders
Both legal persons and arrangements are used for legitimate business purposes, however their features present significant opportunities for those who wish to distance themselves from the proceeds of their crimes and to retain the benefit of their crimes at the same time
Legal persons
Contract and transact business in their own name
The use of directors provided by a service provider or the use of coronet directors (usually a company owned by the service provider) means that transactions are undertaken on behalf of the company by these directors, thus negating the need for the client to be associated with the transaction
The extent of information available from a company's registry Aries significantly form one jurisdiction to another. Some require information on beneficial ownership at the time of incorporation but do not impose any obligation to update the register when this changes
While it is often a requirement to inform the authorities of the shareholders, this information is not useful in establishing beneficial ownership as the use of nominee shareholders is routinely provided by OSPs in offshore jurisdictions
A company must usually disclose the address of its registered office to the company's registry but this is usually that of an OSP and the company's physical presence is not necessarily located there
Bearer shares are a feature of some companies that renders any CDD undertaken useless as soon as the shares change hands
The authorities in a well regulated jurisdiction should have access to the files of the OSP however they may still have difficulty identifying the human face behind a company particularly if it is owned by another company, registered in another jurisdiction or if the shares are owned by a legal arrangement or have been issued in bearer form
Bearer shares: Shares which are considered to be owned by the 'bearer', i.e whoever has them in their possession
Legal arrangements
Most jurisdictions do not require trusts to be registered in the same way as companies and therefore the existence of a trust is not a matter of public record.
The benefit of any register would only be as valuable as the information that is contained in the trust deed and this can be minimal
In a law, a trust is recognised without any written documentation (although it is unlikely that a well regulated TSP would operate in this manner)
in the past, dummy settlor have been named in trust documentation so that the true provider of the funds is not evident form the documentation. While this practice is no longer prevalent in all regulated jurisdictions, it is still acceptance for a Declaration of Trust which does not contain the name of the Settlor to document the terms of the trust
Where a settlor's details are recorded on the trust deed only the first provider of funds is recorded on the documentation however trusts are flexible in nature and would usually allow further funds to be added
A person's ability to benefit can be hidden. It is not uncommon to find that trust documentation has been prepared with only a well known charity as the named beneficiary