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Monitoring of activities / management and control (A number of factors can…
Monitoring of activities / management and control
OSPs are required to scrutinise transactions undertaken and activities carried out throughout the course of a business relationship to ensure that they are consistent with the relevant person's knowledge of the customer as documented within the customer profile
Transaction monitoring is a requirement of the money laundering legislation and is designed to ensure that money laundering is prevented, detected or deterred
Trusts and company administrators should therefore be referring to the customer profile on a regular basis and whenever activity occurs, for example, the funds are received or when payments are made
A number of factors can be considered when looking for the best OSPs. Some of these include
Professionalism
Confidentiality
Honesty
Expertise in the line of service
Adherence to regulatory standards
The best OSPs make it a point of duty to implement and enforce regulatory measures. This is important as regulatory measures provide a means for standardising offshore services and filtering the persons who access the services of OSPs
Respect of regulatory measures is indicative of the professional standards that the best OSPs have set for themselves to ensure that they deliver the quality offshore services
In seeking to determine where central management and control of a company incorporated outside of the UK lay, for the purposes of assessing liability to pay tax on chargeable gains, it is essential to recognise the distinction between cases where management and control of the company is exercised through its own board of directors or at the GM of the shareholders. They could be known as the 'constitutional organs of the company'
There could be extreme regulatory and possible taxation issues if the functions of these constitutional organs are 'usurped' in the sense that management and control is exercised independently of or without regard to those constitutional organs
Any attempt by anyone (the client or any third party) to usurp the OSPs control over the company should be resisted. It is unlikely the client will thank the OSP for not preventing too great an involvement which leads to the central management and control of a company being determined as where they reside rather than in the offshore location it was intended to be
Expertise in the line of offshore services provided is an essential factor as anyone going offshore would want to be confident of the legal and financial advice obtained. The best OSPs are equipped with lawyers, as well as financial and corporate secretarial professionals, that are capable of delivering updated information, reliable advice and sound offshore tax planning strategies to their customers
Sham trust
Occurs when a settlor acts on the fact of it as if they wish a trust to be constituted but by their actions interferes in the day to day administration of the assets of the trust and appears to enforce their intentions and controls the action of the trustee
It is likely that the settlor is not named a beneficiary or as another connected party such as protector or co trustee
The trustee by assenting to the requests and/or instructions of the settlor after the trust has been constituted will bring into question the true intentions of the settlor
A trust that at face value appears perfectly valid may be set aside if it is a sham trust. The court will look at the reality and substance of the various transactions and determine whether the settlor has given false impression that a trust has been created.
The trustee should consider is this a deliberate attempt by the settlor and/or trustee to enter into a trust arrangement which gives the impression to third parties that the arrangement is a trust? However, the actions of those parties indicate that this was not the intention of either the settlor or trustee to create a trust
Administrators should communicate with their clients and their advisers on a regular basis in a variety of ways. Administrators should ensure that they manage their client's expectations from the outset of the relationship in order to ensure that they understand that, at times, they may not be able to fulfil their clients wishes, for example when to do so would expose the TSP to an unacceptable level of risk
During everyday activity, it is important that administrators bear in mind that as trustee and/or directors, it is important that the OSP is in control of all aspects of the administration of the trusts and companies to which they provide services. Any activity that suggests this is not the case should be addressed immediately and not simply accepted by the service provider. Examples of instances which may need to be addressed with the client or third parties include
receipt of an 'instruction' rather than a request from a beneficiary for the trustee to pay funds to them
the settlor referring to trust assets as their money
the client requesting a broker directly to buy or sell shares that are owned by the trust or company
Laerstate BV v HMRC
Wood v Holden (2006)
Rahman v Chase Bank Trust Company Jersey Limited (1990)