Asset protection, bearer shares and anonymity

Time moves on, manners turn, so business customs should do the same. However, even in full swing of the global financial crisis, when tax authorities are aggressive towards probable tax evaders as never before, and super-confidential tax havens are quick to backwater, there are always smart providers advocating bullet proof asset protection schemes based on bearer shares and complete anonymity. It's not always that good as it is positioned.

First of all, what is it that the anonymity of an offshore structure is based on? Bearer shares and/or formal non-existence of the owner. Any of these concepts is doing great for the purposes of mere confidentiality, when you quietly do your business and don't upset anybody's interests, including those of the state and its tax department. As soon as you cross the line, all these high secrecy tricks might not be working. Behind the sophisticated paperwork, there always exists the real owner which is you. And it's getting more and more difficult for modern tax havens to hide you. If something goes wrong, in particular inferring a criminal tax investigation, and your home country inquires your tax haven, chances are your identity and true membership will be disclosed.

There are still a number of indeed un-cooperative countries, which will be protecting your privacy rights to the last breath, and the information about the real owner of the assets in question will never be divulged. Does it mean you and your assets are really safe? Below are a couple of situations for your consideration.

Situation one: identifying the owner. There exist judicial precedents of so-called «presumption of owner». If your offshore company happened to be a party to legal proceedings, and the court cannot identify the owner, the judge tends to presume that the defendant is the owner of the company. Now it becomes your burden to find the owner and/or prove that you are not the one.

Another example is even worse and easier, with no involvement of the judge-made law. When under certain circumstances the country's authorities cannot identify the owner of some property, this property may be recognized abandoned and subject to forfeiture to the state budget. Now you can go to law to prove that seizure was illegal because you are the owner, if you ever planned to do this.

As a matter of practical comment, apparently, it's safer to have someone identifiable as the holder of your shares, than just nobody. Even a mere nominee person would serve better than bearer shares.

Situation two: bearer shares and taxation. In many countries transfer of bearer shares falls into the gift category and is subject to the according tax. It means, you can accept and transfer bearer shares as many times as you want, but as soon as you are «caught» and all transfers have been proved retrospectively, all involved persons are in trouble for tax evasion. Add here non-reporting of foreign transactions, where applicable.

Actually, because of the known wide uses of bearer shares for money laundering and tax evasion, many jurisdictions have abolished bearer shares or restricted their free circulation. Nominee shareholding still plays nearly same role, and brings same challenges, if you mean to use it only to preserve anonymity. Nominee person is a nominee person, which can hardly appear before the court and claim to be the real owner of the assets in question.

Notwithstanding the aforesaid, we do not campaign against anonymous offshore structures. It is a tool that can serve its purposes. You are welcome to utilize it, but compare its net out to discern for yourself if that one is for you in advance. If you go for it, bear in mind the downside.