By Derek Sambrook
The stream of business into Panama during the last twelve months has been remarkable. In 2005, almost 40,000 (39,976) new companies were registered. That’s some 55% more than in 2004.
But, some of the people discovering this Latin finance center are moving too quickly. I know this from the number of “walking wounded” who visit me—often with a bundle of papers and a look of frustration on their faces. Their errors have been costly in time and money.
One gentleman produced a foundation charter, and when I asked him to let me see a copy of the equally important regulations, he couldn’t. None had ever been drafted. That’s a little like buying a car without an engine—it may look good parked on the dealer lot, but you won’t be able to drive it.
Examples such as this underscore the critical importance of making sure that your offshore plan is correctly set up from the beginning and that afterwards, everything stays in place. Of course, you can’t predict future events, and there are often surprises such as the whale recently seen swimming up the river Thames in London, past Big Ben and the Houses of Parliament. The flow of life can lead to the unexpected, but a certain degree of contingency planning is still possible.
Do Your Research
Let’s start at the beginning of your offshore plan. Your first step should not be to book a flight to an offshore center. Rather, you should start by doing your research at home with your own domestic professional advisors. They can inform you of the legal and tax consequences of your plan. Getting it right onshore before going offshore just makes sense.
Next, you need to select the appropriate offshore service providers. Take your time and try to get recommendations from sources you have faith in. The Sovereign Society, of course, is one such source. Relying on Google can turn your choice into a gamble, one that you may very well lose in the long run.
You can narrow down the selection process by choosing an offshore service provider with no fixed ties outside his jurisdiction. That means no affiliates, representatives, or branches in another country. Also, don’t assume that because the firm’s offices are offshore, that its managers and executives cannot still be a source of compromise in your own jurisdiction.
To appreciate how important this could turn out to be, you need only consider the case of the now defunct Cayman Islands bank, Guardian Bank & Trust (Cayman) Ltd. Maybe some of its American customers felt comfortable when they did business with the bank because it was headed by a fellow American, John M. Mathewson. But as it turned out, the Chicago builder—turned banker—became one of the most valuable single sources of information for the prosecution of American tax evaders. When he was arrested in 1996 for facilitating money laundering, he was living in San Antonio, Texas. To stay out of prison, he not only provided a wealth of documentation, he revealed many of the tactics used for keeping the funds disguised, including the use of offshore credit cards.
It has become common for plaintiffs to pursue related parties (no matter how tenuous the circumstances) within the jurisdiction of the court when they cannot take direct action against an offshore party. You can see the approach at work every day: co-trustees or protectors of foreign trusts, for example, who share a common country of residence with the plaintiff. These connections can be stepping stones that lead those with ominous intention and determination across the secure moat surrounding an offshore centre.
Avoid Self-Inflicted “Wounds”
The offshore landscape is strewn with victims of bad advice and incompetence. Many of the wounds, however, are self-inflicted by not taking sufficient care in the first place. Wouldn’t it be innovative, therefore, if one of the offshore governments issued a financial services advisory with their immigration cards? It need only contain a simple text along the following lines: “We hope you enjoy your stay with us, but please exercise caution if you plan to attend to personal financial affairs during your stay. Not just our tropical sun can burn you.” Hopefully, the service provider you choose will not be one who forgets to draft regulations for the foundation he has provided.
At your first meeting with the service provider, have a list of questions that cover your objectives and your concerns. Make sure that you understand the fee structure and are satisfied with the terms of service. And don’t equate size with the degree of skill and expertise you will receive. Big firms often see greater staff turnover so you must look beyond the gloss and sheen. Don’t be lured by clever, eye-catching websites, or glossy logos alone; nor the slick sales pitch that promises quick-fix solutions.
Once your onshore and offshore assets are working smoothly in tandem, thanks to preliminary careful groundwork, it is important that you regularly review your financial affairs. If, for example, you have either a trust or foundation, you might want to periodically consider whether any beneficial changes (if permitted) need to be made. If you have an investment portfolio or other income-producing assets, you should be sure that performance is satisfactory and that your priorities (which might have changed) are being met.
Don’t appoint a trustee, for example, and expect him to necessarily have the competence to manage an array of business interests, some of which may be specialized and require certain skills. That’s an unfair burden that can lead to losses and acrimony. The analogy I often use with clients is the example of the circus ringmaster. It’s his job to make sure that the show runs smoothly and the various acts perform well. That’s what a trustee or corporate manager must do: maintain control and make sure that all the various assets perform well. You should make a point of visiting your service provider at least annually. In my 40 years of experience, I have not found any substitute for personal discussion—telephones, faxes and e-mails are an aid, not a substitute.
In summary, do your research, go wherever it leads you, and remember to go back to check on the outcome of your plans. Remember what Deng Xiaoping once observed: “It doesn’t matter whether the cat is black or white, as long as it catches the mouse.” And keeps catching it, I might add.
Derek R. Sambrook is a former British regulatory official and a member of The Sovereign Society Council of Experts. Working in the field of trust administration for more than 30 years, since 2001, Sambrook has headed Trust Services SA, based in Panama.