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Nominee services and privacy protection

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				What you might not know: Nominee services and privacy protection
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Appointing a nominee director or shareholder is a common practice -- not just amongst those who like to keep their names out of the paperwork. But if confidentiality is your main reason, be sure to get what you pay for.

OFFSHORE-FOX.COM
with Peter Widder

The intensified efforts by onshore authorities to access offshore data and identify those citizens with offshore holdings have resulted in a run for cover. As the strength of traditional legislative barriers is being tested, it has become the norm to seek supplementary defences.

The appointment of nominee directors and nominee shareholders is so wide amongst clients of offshore services that virtually all offshore incorporators will offer this service, either themselves or through a third-party management company.

Nominee services
and offshore business

The concept of nominating professional directors and shareholders is as old as the offshore business itself.

Offshore companies involved in trading relationships with onshore entities, such as those participating in transfer-pricing schemes, rely on nominees to demonstrate that they are truly offshore -- that is being managed from an offshore jurisdiction, and not from the beneficial owner's domicile. This is important if any tax advantages are to be gained.

Some appoint professional directors in order to gain relief from the administrative headaches connected with their offshore company. A company administrator will ensure that all legislative requirements are adhered to and take care of the settlement of annual fees, maintaining registered office, filling annual returns and so on.

Professional nominee officers are prerequisite to those who seek to own a more complex offshore entity -- such as a regulated bank or an insurance company -- yet do not posses the prescribed qualifications to serve as board members themselves.

Nominees for privacy

But nominee services are not only used to overcome regulatory hurdles, simplify administration or facilitate tax mitigation.

Nominee services naturally play an important part in the protection of financial privacy.

Where an offshore company serves as the first defence with which to shield asset ownership, nominee officers and shareholders provide a second layer of protection. Would-be asset seekers, be they governments or private litigants, intruding into offshore records and databases, will not be able to match their target's name against available data. This will not be because the sought information will be kept as confidential, or be hidden or obscured -- it will be because the information will simply not be there.

The desire to obtain complete privacy, often bordering on anonymity, is in fact a major reason why so many are happily paying extra for keeping their names out of the paperwork.

But some are just wasting their money.

What you don't realise

Offering nominee services is a profitable option for any offshore incorporator. In addition to the flat annual fee you pay for keeping your name off the records, they will charge a per-task fee for any transaction you request they execute on your offshore company's bank account. (Where most will bill a flat per-transaction fee of about $10 to $20, some are known to charge a percentage -- as if the difficulty or time spent preparing a transfer order somehow depended on the amount involved!)

Privacy then costs -- but what if you don't even get what you paid for?

Putting easy profits above principles, many incorporators fail to tell you that using their nominee services might provide no extra privacy at all: Ever greater number of offshore jurisdictions now require that the details of true beneficial ownership be disclosed to them. Quite naturally, employing nominees in such a case is all but useless.

When challenged on this point, some incorporators argue that the beneficial owner details are only held by the offshore government and are not made public -- as opposed to the directors' and shareholders' registry which might be open to public scrutiny, they might add.

Well:

1. First of all, jurisdictions that do place their corporations' officers and shareholders on public file should never even be considered "offshore" from a privacy point of view. What benefit do you derive from using an offshore corporation to shield assets if anybody can look up your name against the corporation's name?

2. Nominee services should provide a second layer of privacy protection, not first. Using nominee services to compensate for a jurisdiction's lack of privacy provisions (as per point 1) is bad advice -- it is rather like getting an alarm installed because the door to your house will not lock. Fix the door first -- incorporate elsewhere -- then employ nominees to provide the additional barrier of protection against would-be intruders.

3. Despite assurances regarding the confidentiality of any beneficial owners' register, experience has taught the author of this article to exercise caution with respect to all governments -- both onshore and offshore. A "if they don't know, they can't tell" is an appropriate line of thinking here.

Will your defences stand?

Before blithely accepting the logic of a nominee-administered structure, you would be well advised to question your offshore services provider as to the actual privacy benefits. You might be surprised to learn that it might be necessary to make a complete and total disclosure regarding beneficial ownership. Perhaps it's time to look elsewhere?

If you are serious about protecting your financial privacy, additional considerations need to be taken into account with respect to nominee-administered offshore structures.

The nominee's own domicile / jurisdiction needs to be considered, in particular what legal protections exist to confound any legal actions mounted to force the disclosure of beneficial ownership.

From an asset protection point of view, the strength of any offshore structure must always be judged in terms of how many legal manoeuvres (court orders) would be needed to arrive at the final destination and seize assets.

The level of protection increases in direct relation not only to the number of steps that need to be taken to reach the litigant's goal -- your assets -- but also the difficulty of each step. What is needed is a metaphorical mountain assent, and not a stroll in a meadow.

Of course, the same principle applies in cases where the primary concern is the effective preservation of confidentiality of beneficial ownership.

A handful of corporate administrators offer the option to appoint their corporate nominee -- that is another offshore entity existing solely for this purpose, constructed with the deliberate intention to frustrate any legal attempts to extract information from it. Such corporate nominees typically make use of multi-jurisdictional laws (regulatory arbitrage) to provide practically impenetrable defences for those who seek this level of protection.

But this approach is not at all usual -- the opposite is.

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