THIS POST IS CONTINUED FROM PART 11 , BELOW--
Mauritius had become the top source of FDI into the country only due to ROUND TRIPPING.
Mauritius had been the source of more than 37% of all foreign direct investment inflows into India between 2000 and 2015.
India has now amended a 33-year-old tax treaty with Mauritius that had exempted the island’s investors from capital gains tax on short-term investments in India
ROUND TRIPPING is a phenomenon by which Indian individuals and companies avoid tax by sending funds abroad and then bringing them back on to home soil via Mauritius-based companies. Much of the investment into India via Mauritius over the last 15 years is believed to have been by CORRUPT Indian residents—all BIG FISH
Signed in 1983, the Double Taxation Avoidance treaty between the two countries made Mauritius, which taxes capital gains at near-zero rates, an attractive “post box address” for foreign investors to route investments into India Indians who evaded taxes set up shell companies in Mauritius, concealing identities and channeling cash or stock market investments through “round tripping” and “participatory notes”
The Securities and Exchange Board of India (Sebi) tightened the norms for participatory notes (P-notes) in order to check misuse of these instruments in round-tripping and money laundering.
Now offshore derivative instruments (ODIs) issuers need to adhere to the Indian know your customer (KYC) norms and the subscribers will have to take prior permission from the ODI issuer in case of transfer of the instruments to another offshore investor.
Revision of Mauritius treaty has caused India-bound investments now getting re-routed from other tax-friendly jurisdictions like Singapore.
In the financial year ending March 2016, Singapore overtook Mauritius ($8.3 billion) and reported highest FDI inflow ($13.6 billion) into India. This higher investment from Singapore is due to revised treaty with Mauritius.
The Dutch tax treaty, which allows exemption from capital gains and a lower rate of tax on dividends, has led to the proliferation of holding company structures.
The Netherlands has been in global focus due to tax practices known as the Dutch Sandwich — a multiple-layered holding company structure that has helped companies avoid taxes or pay minimal taxes in any jurisdiction.
A Dutch Sandwich is a tax avoidance strategy that some multinational corporations use to lower their corporate tax liability. The strategy uses payments between related entities in a corporate structure to shift income from a higher-tax country to a lower-tax country..
In a Dutch Sandwich, revenues from sales of a product shipped by an Irish company is booked by a shell company in the Netherlands, taking advantage of generous tax laws there.. This is usually the second part of the scheme is referred to as the "Double Irish with Dutch Sandwich".
The remaining profits are transferred directly to Cayman Islands or Bermuda, known as a Bermuda Black Hole.
A Bermuda Black Hole is a tax avoidance scheme under which hundreds of billions of dollars of multinational companies' profits have been routed to bank accounts in Bermuda, usually after a transfer to a Bermuda-based lawyer or shell company of ownership of intellectual property rights underpinning a product that has been sold in a country with higher tax. As of now, Bermuda's corporate tax rate is 0%
In all the tax treaty renegotiations, the effort of the Indian government is to introduce a limitation of benefit (LOB) clause that prevents fly-by-night operators from misusing bilateral tax treaties for short-term gains.
A corrupt wealthy Indian, who has received crores in kickbacks , will send his money to Mauritius, where it is dressed up in a secrecy structure, then disguised as foreign investment, before being returned to India. The sender of the money can avoid Indian tax on local earnings.
Two months ago, India and Singapore signed a pact for amendment of the Double Taxation Avoidance Agreement (DTAA), in a bid to curb illegal hoarding of money and to prevent round-tripping of funds, misused for tax evasion. This was done for Mauritius and Cyprus earlier
Double Taxation Avoidance Agreement (DTAA) was a major reason for a large number of foreign portfolio investors (FPI) and foreign entities to route their investments in India through Mauritius.
A DTAA applies in cases where a tax-payer resides in one country and earns income in another.
The DTAA, or Double Taxation Avoidance Agreement is a tax treaty signed between India and another country ( or any two/multiple countries) so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.
India has comprehensive DTAAs with 88 countries, out of which 85 have entered into force.. This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country.
Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to tax payers who have paid tax to a country with which India has not signed a DTAA.
Thus, India gives relief to both kinds of taxpayers. A large number of foreign institutional investors who trade on the Indian stock markets operate from Singapore and the second being Mauritius.
According to the tax treaty between India and Mauritius, capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold.
Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax in India. Since there is no capital gains tax in Mauritius, the gain will escape tax altogether.
Beginning from April 2017, capital gains tax will be imposed at 50 percent (liabilities will be shared half and half between the countries), grandfathering for a period of two years. The tax will be imposed completely from April 2019.
The India-Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company. The Third Protocol amends the DTAA with effect from 1 April 2017 to provide for source based taxation of capital gains arising on transfer of shares in a company. This will curb revenue loss, prevent double non-taxation and streamline the flow of investments.
Singapore’s investment of $5.98 billion has over taken Mauritius’s investment of $4.85 billion as the single largest investor for the year 2013-14.
The Indian Government has also reached an agreement with Switzerland where the latter will share complete information on investments from Indians in Switzerland from 2019
P-Notes are instruments issued by registered foreign institutional investors to overseas investors. While the FPIs are registered with the Securities and Exchange Board of India (SEBI), the overseas investors investing in P-Notes are not registered with the market regulator, and thus their identity is not known to the authorities..
An Indian sending unaccounted money to tax havens through hawala transaction and the hawala operator in the tax haven investing that money into the P notes issued by an FPI registered with SEBI. In this way, unaccounted money can be converted into legitimate source of income.
P-notes are basically 'hot money' which can be pulled in and out at any point of time increasing the volatility in the market. Terrorists can use these as instruments for their transactions as there is complete anonymity about the final receiver of P-notes or they can also use it as a tool of financial terrorism by increasing the volatility .
P-notes are often criticised for evasion of capital gains tax. India’s biggest source of FDI is India itself, money departing on a short holiday to a tax haven and then routed back as FDI. The bulk of P-note investments in the Indian stock market were from tax havens such as Cayman Islands.
Tax havens such as Mauritius and Singapore thrive parasitically, they feed on substantive economies like India
INDIA WAS RULED BY AN ITALIAN WAITRESS , WHO WAS "SUPER PRIME MINISTER"
SHE COULD NOT EVEN UTTER THE SPELLING OF " E C O N O M I C S "
SHE CLAIMED TO HAVE GRADUATED FROM CAMBRIDGE UNIVERSITY , WHILE THE TRUTH IS WAS A MERE WAITRESS IN THAT TOWN
THIS IS LIKE A WAITER IN A MUMBAI RESTAURANT CLAIMING THAT HE IS A BTECH FROM IIT MUMBAI.
We know the names of corrupt politicians who HOWLED IN PROTEST whenever there was an effort to ban participatory notes (P-Notes), or when we tried to ascertain their beneficial ownership.
We know that themoney being brought into India was actually just Indian black money that had earlier been sent out of the country through the hawala route . We know who these Indian politicians are.
A very large proportion of money invested in the markets by FIIs was funded through P-Notes. The bastards had the power to affect the flows and even crash the stock market
The CAD current account deficit is under control now. India is now attracting a lot of FDI which, by definition, isn’t prone to flowing out as quickly as FII money
With a global crackdown on not just tax havens but also on unaccounted flows, India has found it easier to increase the know-your-customer norms for FIIs—so while investors are still allowed to come in through P-Notes issued by well-known fund managers, the details of the beneficial ownership has to be made available to Sebi on a regular basis.
Over a period of time, this has resulted in Sebi knowing the ownership details of all P-Note holders in the country
We don’t want all eggs in one basket. A Special Investigation Team (SIT), MUST be set up to track black mone and MUST ask Sebi to give it all details on the beneficial ownership of P-Notes.
SIT MUST correlate this data with the income/wealth-tax returns of P-Note-holders and see if there are undeclared incomes.
WE KNOW THE RAMPANT CORRUPTION IN SEBI—
We know the Avarjeet Singhs, the Jerome K Alexanders , the Rajesh Pratap Singhs and their ilk
Every regulator has specific responsibilities. RBI regulates banks and not individuals. If any individual commits a fraud or indulges in corrupt practices, it is the Anti-Corruption Bureau or Central Bureau of Investigation that comes to play.
The same goes for Sebi.
In the letter to the Prime Minister Modi, Subramanian Swamy has stated the following:
* Shaktikanta Das was supposed to retire from service in February. His first posting in the state of Tamil Nadu had his alleged involvement in several corruption cases including land allotment to foreign collaboration agreement.
*After his promotion in Delhi as a close confidant of the former Finance Minister, he has been seen to have acted in favour of the former minister, covering scams, delaying investigation and has extended every other support possible. Financial help was given to him and Das helped him cover up his involvement in 2G Spectrum Scam, Aircel-Maxis scam, NSE fraud, and manipulate probes against him.
INDIA MUST STOP LEARNING FAILED ECONOMICS FROM THE WEST
INDIA MUST LEAD THE PLANET IN OUR WAY OF ECONOMICS
Penny stocks, are common shares of small public companies that trade at low prices per share.
The Income Tax (I-T) department has launched criminal prosecution against shell companies, stock brokers, beneficiaries and operators involved in laundering over Rs 10,000 crore in Mumbai alone by manipulating listed penny stocks to claim bogus long term capital gain (LTCG)
Penny stocks are shares of companies that have market capitalization (market capitalization-the total value or worth of the company) less than Rs.100 crore and each share trading below Rs.10. Do you know how many penny stocks trade on BSE or NSE. It’s 25% for the BSE and 10% for the NSE.
In the United States, the U.S. Securities and Exchange Commission (SEC) defines a penny stock as a security that trades below $5-per-share, is not listed on a national exchange, and fails to meet other specific criteria. In the United Kingdom, stocks priced under £1 are called penny shares.
Fraud is widespread in the penny stock market. Even though the penny stock companies are small, the scams that involve them can be for tens of millions of dollars..
Unlike big stocks, penny stocks are more prone to manipulation.. Penny stocks trade at a relatively low price and have small market capitalisation.
Penny stocks usually seem to belong to dubious promoters. These promoters sell their unworthy financial companies during the peak period. Once they have off loaded their junk, they slowly disappear from the light. The investors then get stuck with the bad investments.
Penny stocks usually have a promoter-operator nexus. The promoters usually hire investment bankers (low reputed mostly). These people in turn negotiate a deal with the operators who buy and sell shares anonymously with fake accounts. During boom times, people are ready to buy anything.
These operators carefully create a media frenzy or approach individual investors by mail/phone. They artificially push up prices and then offload these equity shares to investors. The profit is then shared between the promoter and operator.
Investors would have no idea as to what or how much shares were insider traded nor how long stocks were held.
The I-T has alleged that Ruia laundered over Rs 17 crore between 2012 and 2014 through Unno Industries Ltd, a listed penny stock and availed tax exemption by showing fake long term capital gains.
The I-T has alleged that Ruia later claimed tax exemption on the profit of Rs 17 crore he made through trading in the penny stock. The brokerage and the shell firms also received a commission of 4 to 6 per cent from Ruia
It is high time we look upon shell companies as legit "personal investment firms" or “ legal vehicles for business transactions” --these are nothing by getaway cars from criminals who launder money and do tax evasion.
The crooks give all sorts of legitimate uses ( sic ) such as—
- helping entrepreneurs gain cheaper and easier public listings on a stock exchange despite minimal sales turnover
- hidden financial interactions between two companies: if “Company A” does not want to be associated with “Company B”, for instance because of its poor reputation, they can create a shell corporation through which the transaction can be concealed.
By disguising both the ownership of the shell corporation and its activities, it is relatively simple to conceal the true origin and intent of large amounts of funds that might have been obtained through illegal actions such as kickbacks and criminal earnings
Why should a company be allowed to hide financial transactions and assets?
Current laws do not require the creators of shell companies – such as Mossack Fonseca – to report who actually controls them.
Piracy in Somalia started when warlords ousted dictator Siad Barre after a 22-year rule. The absence of a functioning government brought foreign fishing vessels to Somali waters to illegally empty its fishing grounds. Somali warlords struck deals with European companies to dump chemical waste in Somali waters.
The evidence surfaced after the 2004 tsunami when dozens of containers with toxic waste washed up on the Somali shores, causing immense health problems for the local fishing communities.
The fishermen took up weapons and started defending their fishing grounds against illegal fishing and waste dumping by foreign vessels. Skirmishes led to seajackings, which turned out to be a much more lucrative trade than fishing.
Soon the self-proclaimed ‘civil coast guards’ became a professional criminal enterprise-using SHELL COMPANIES for the illegal money route.
Piracy went to become a multi-million dollar industry with investors from Dubai with pirates using satellite phones and GPS devices.
When pirates spot a target, small pirate boats (skiffs) set out with RPG-launchers and machine guns to the vessel, shooting and threatening until the ships stops and is ready for boarding. When a ship is captured it is taken to the Somali coast and held until the ship owner pays a ransom for the ship and crew.
Ransom money can run up to $5 million or more, depending on cargo. If you consider the cargo of a full oil tanker is worth $200 million, a $5 million ransom for crew and ship doesn’t seem that unreasonable.
In 2008, there were 111 attacks of which 42 were successful seajackings. When you consider 22,000 merchant vessels pass the coast of Somalia every year, the amount of seajacked ships is small but its earnings high. In the peak year 2010, pirates earned more than $300 million in ransom money.
All this was a mere front
JEWS STOLE THORIUM FROM SOMALIA
JEWISH INSURANCE COMPANIES SANG ALL THE WAY TO THE BANK
When Somali pirates started to pose a threat to the shipping industry, WESTERN govts sent warships with drones and helicopters, and stationed marines on ships.
There was quick moolah to be made via SHELL COMPANIES-- criminal money was laundered .
I HAVE ASKED INDIAN NAVY TO PROTECT MY SHIP THOUGH THE FLAG WAS FOREIGN
At most basic, in the eyes of the law all companies are simply a “legal person,” which, like real people, can sue and be sued, hold bank accounts, and own and sell property and other assets.
In contrast to operating or trading companies that have employees who make a product or provide a service, however, shell companies are little more than this legal identity, and hence the “shell” moniker.
Shell companies are a threat when they cannot be traced back to the real person or people in control. Anonymous shell companies are so useful to criminals because they screen or veil illicit conduct.
Because the companies themselves are largely expendable, it does little good if law enforcement officials can follow some criminal enterprise or trail of illicit funds back to a company, but no further.
Indian law enforcement agencies to have strong investigative powers totrack down shell company owners. Anybody stonewalling must be punished by law.
The difficulty here, however, is that police powers are limited by national jurisdictions, whereas the misuse of shell companies is all too often an international problem. The shell company may be incorporated in a different jurisdiction, or the beneficial owner may be a foreign resident, or the provider may be located in a different jurisdiction, or all three.
Furthermore, if the provider who formed the company did not collect any information on the owner ( commonplace), no amount of police pressure will summon up the missing information.
CSPs must collect and hold identity documentation on customers forming shell companies according to the “Know Your Customer” principle with AADHAR CARD.
Criminal organizations are involved primarily in profit-making crime,. . The generated cash is neither easy to hide nor to utilize. Sudden use of unexplained wealth may raise suspicion. Investigators may easily establish a link between cash, illicit activities, and their perpetrator.
It is thus necessary, for criminal organizations to, (1) erase the link between the crime and the money, (2) erase the link between the money and its new owner, and finally (3) shelter the profits from possible confiscation.
Instead of owning a house directly, a person can own a property through a shell company. Local land registry records will identify the shell company as the owner, as opposed to the person behind it.
CONFISCATE THE LAND -- MODI MUST NOT ALLOW SHELL COMPANIES TO OWN LAND .
GIVE A DEADLINE—AFTER THAT SEIZE ALL LAND REGISTERED UNDER SHELL COMPANIES.
The rules and all the provisions of the BTP Amendment Act came into force on 1st November, 2016.
The Income Tax department has registered over hundreds of cases and and attached assets worth crore nationwide as part of its post demonetisation action under the newly enforced Benami Transactions Act.
The Benami Transactions (Prohibition) Amendment Act, 2016 (BTP Amendment Act), came into force from 1st November 2016. The new law gave more teeth to the authorities to curb benami transactions....
The Act provides for imprisonment of upto seven years, confiscation of the property and non-return of the property from the benamidar to the real owner. There is no compensation by the government if the property is confiscated. The Act is tries to sort out the weaknesses of the existing provisions and is remarkable in terms of the following features:
(i) it amends the definition of benami transactions,
(ii) it establishes adjudicating authorities and an Appellate Tribunal to deal with benami transactions, and
(iii) it specifies the penalty for entering into benami transactions.
The existing Act defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person. The Act amends this definition to add other transactions such as property transactions where:
(i) the transaction is made in a fictitious name,
(ii) the owner is not aware of denies knowledge of the ownership of the property, or
(iii) the person providing the consideration for the property is not traceable.
Property transactions among family members is not benami transaction. Here, the Act clearly sets the limit of relationship. Only lineal ascendants (father, mother, grandparents and great grandparents) and lineal descendants (children, grandchildren and greatgrandchildren) are considered as family members.
The Bill seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions:
(i) Initiating Officer,
(ii) Approving Authority,
(iii) Administrator and
(iv) Adjudicating Authority.
The Act gives the Initiating Officer the power to enquire into any person, place, documents or property in the course of investigation into any matter related to a benami property transaction. Interestingly, the Act covers all domestic benami property transactions conducted since 1988.
Simply, benami property is the one whose legal owner is different from the actual owner.
The amended Act gives a comprehensive definition of benami property. As per the amendment, Benami property includes: immovable assets such as land, flat or house, movable assets such as gold, stocks, mutual fund holdings, bank deposits etc. If the property is sold, then the proceeds from the sale is also included under benami property.
According to the Act, people caught with 'benami' properties could serve up to seven years of rigorous imprisonment and have to pay a significant fine. False information face about benami transaction will end up in rigorous imprisonment for up to five years and will have to pay a fine of up to 10 per cent of the market value of the property.
IN MY OPINION PUNISHMENT SHOULD HAVE BEEN MORE SEVERE
Post demonetisation on November 8 last year, the I-T department had carried out public advertisements and had warned people against depositing their unaccounted old currency in someone else's bank account. Such an act, it had said, would attract criminal charges under the Benami Property Transactions Act, applicable on both movable and immovable property.
On the topic of hide and seek, a person on the fast track to divorce can conceal a fortune from a scorned spouse behind a shell company. People use the maiden name of the wife before marriage.
Partners at a law firm defending against a costly lawsuit have also been known to protect their personal assets by doing the same or by placing them in a trust, making it hard or nearly impossible to seize them.
If shell companies leave little or no paper trail, criminals can move money in and then out of them in order to finance the world’s deadliest terrorist organizations, drug cartels and other forms of violent organized crime while hiding in the shadows. If law enforcement can’t follow the money, they can’t find its source.
Only a fool holds money that can be traced back to a crime in their own name. Before that ill-gotten cash is spent or relocated to its final destination, shell companies can act as the middle man by camouflaging the illicit source of income.
Documents indicate Ukrainian President JEW Petro Poroshenko set up an offshore holding company to move his candy business to the British Virgin Islands, possibly saving millions of dollars in Ukrainian taxes.
Money laundering is an essential step in the longterm success of any career criminal. Crime pays in cash, and it’s hard to buy a house with cash. So you need to bank the cash.
IN INDIA 99.9% OF LAND AND PROPERTY DEALS ARE DONE PARTLY BY CHEQUE AND PARTLY BY HIDDEN CASH. EVERYBODY KNOW THIS.
THIS IS WHY ON PAPER LAND SALES ARE CHEAP. IT USUALLY GOES AT THREE TIMES THE COST ON PAPER.
THE GOVT MUST BE EMPOWERED TO PAY 20% MORE THAN THE PRICE PAID BY CHEQUE AND BUY THE LAND / FLAT AND THEN AUCTION IT OFF.
We don’t want Collegium Judges to call the shots here and make laws by PIL route
A criminal organization looks to find a safe way to deposit huge amounts of cash, like millions and millions of dollars in cash into legitimate bank accounts, without it looking suspicious to police and tax agencies.
Banks are required to create a transaction report and alert the law whenever someone makes a deposit over ten thousand dollars in cash, but they are not required to report it if someone deposits nine thousand dollars in cash every day, for instance.
So then if there’s a lot of money to launder, the first step is splitting it up into tinier piles of less than ten thousand dollars and funnelling it through the banking system as discreetly as possible, with the bank manager in cahoots .
From there, your money moves in and out of tax shelters and other unregulated banking systems and through as many legitimate systems, too, cleaning the cash of any trace of its origin as you flip the money around the worldwide network of depositors.
Political parties had the clear option to print backdated receipts with connivance of Indian bank managers of foreign banks and launder HOARDED black money during the demonetization period .
Some bank managers got a 20% cut in lieu of exchange of Rs 500 and Rs 1,000 notes.
Nobody has the imprisoned. The govt is afraid of Rothschild’s banks
Old currency notes of Rs 500 and Rs 1,000 were taken during the demonitisation period by jewellers, but with back-dated bills.
The govt should have foreseen this and asked all jewelers to mention in writing their LAST receipt number.. For purchases worth under Rs 2 lakh, there is no need for PAN card. So, multiple receipts with amounts less than Rs 2 lakh can easily be created.
Jewellers could deposit the money so collected in their bank accounts until December 30, 2016. Little wonder then that jewellers were seen charging anywhere around Rs 40,000 for 10 grams of gold, even as the market rate was Rs 30,500.
Real estate developers and building contractors paid in advance six months’ salary to their labourers. Play ball or no job ! These contractors have goons in their payrorll. The workers were given a 2% to 4% salary hike as an incentive.
The idea behind this move was that the employer would either deduct money monthly—goons knew whose legs to break or whose children to kidnap.
One Mumbai shopkeeper has asked 25 of his employees to deposit Rs 40 lakh in their bank accounts and return the money in a couple of months. None of these e employees paid income tax.
Big Fish businessmen took the ‘sarkari’ route like they did with various chit-fund accounts. By identifying a group of people with Jan Dhan accounts, businessmen divided his money in all the accounts and ensure that the amount deposited in each doesn’t exceed Rs 2 lakh. In return, the person in whose name the money is parked gets a commission of Rs 20,000.
Once injected into the banking system, the person withdraws the money in instalments over a period of time and gives it back to the owner against the commission.
Currency traders charged 60 per cent to swap demonetised notes. The second-most-preferred way for getting money legitimised – next only to gold – was the dollar.
More than 25% cut was offered to a bankers, for getting the notes exchanged in due course. The modus operandi: The businessman would deposit money with the banker and then take back 75% of the money after some time, with the balance 25% remaining with the banker as a facilitation fee.
When two firms set up a cross-border joint venture, for example, they may choose to incorporate it on neutral turf.
The daughters of Azerbaijan’s president appear secretly to control gold mines.
A nephew of South Africa’s president, Jacob Zuma, has done nicely out of oil contracts in the Democratic Republic of Congo, where South Africa has sent more than 1,000 peacekeepers.
Former Ukrainian president Viktor Yanukovych owned a presidential palace, a private zoo ( his version or art ) , a vintage car collection and many other luxuries thanks in part to anonymous shell companies.
The banks or lawyers wire-transfer the funds in such a way that the money crosses multiple borders, to frustrate detection or confiscation.
For instance, the money might end up in a US trust managed by a shell company in Grand Cayman, owned by another trust in Guernsey with an account in Luxembourg managed by a Swiss or Singaporean or Caribbean banker who doesn't know who the owner is.
Money is laundered in Panama via bulk cash and trade by exploiting vulnerabilities at the airport, using commercial cover and free trade zones (FTZs), and exploiting the lack of regulatory monitoring in many sectors of the economy.
The protection of client secrecy is often stronger than authorities’ ability to pierce the corporate veil to pursue an investigation. Money can also be laundered in Panama by putting shell companies to work, the same way shell companies are used to launder money in other parts of the world.
Assets may be secretly transferred to a shell company &/or a shell company may be used to open a secret offshore bank account. In these situations, the shell companies may act as laundering links which wash assets in a money laundering circuit.
Mossack Fonseca was in the business of establishing shell companies. Businesses that establish shell companies are usually called “nominee incorporation services.
Mossack and Fonseca provided nominee directors for the corporation, so your name is not actually registered in the government’s documents and therefore cannot be traced back to you. The corporation is controlled with shares, which are registered by date at a notary and not accessible online like the directors of a corporation.
A divorcing spouse; judgment creditor; bankruptcy creditor; or a beneficiary under a trust or will; may face an adversary hiding assets through nominees (i.e. intermediaries).. An adversary can hide real estate, automobiles, jewelry; and offshore bank accounts by titling them in the names of nominees.
Nominees are easily accessed through nominee incorporation services like the one at the “Anonymous Panama Corporation” webpage.
The “Anonymous Panama Corporation” webpage can be used to form a Panamanian shell company with “nominee directors.” The initial fee for this service is $1200. The webpage suggests that one can “save taxes or protect…assets” by forming a Panamanian shell company: The Nominee Directors will not have control over your corporation and can be replaced at any time.
This type of corporation is a good choice if your objective is to save taxes or protect your assets. The actual owner of this corporation is not registered in public records. Shell companies are not the only things that can be utilized as nominees. Lawyers; accountants; bankers; financial advisors; paramours; family members and trusts can be nominees.
The use of bearer shares, nominee shareholders, and nominee directors function to mask ownership in a corporate entity. They are used by money launderers to evade scrutiny.
One controversial but legitimate function for shell companies is to serve as a holding company for intellectual property rights. When franchisees or licensees are billed for their use of intellectual property, such as a brand name or trademark, earnings are shifted to the location of the holding company which affects where earnings are recognized and taxes are paid.
Intermediaries, called nominee incorporation services (NIS), establish U.S. shell companies and bank accounts on behalf of foreign clients. NIS may be located in the United States or off-shore. Corporate lawyers in the United States often use NIS to organize companies on behalf of their domestic and foreign clients because such services can efficiently organize legal entities in any state.
NIS must comply with applicable state and federal procedures as well as any specific bank requirements.
Those laws and procedures dictate what information NISmust share about the owners of a legal entity. Money launderers have also utilized NIS to hide their identities. By hiring a firm to serve as an intermediary between themselves and the licensing jurisdiction and the bank, a company’s beneficial owners may avoid disclosing their identities in state corporate filings and in the documentation used to open corporate bank accounts.
Several mechanisms operate to provide corporate entities with additional anonymity. Bearer shares are negotiable instruments that accord ownership of a company to the person who possesses the share certificate. Such share certificates do not contain the name of the shareholder and are not registered, with the possible exception of their serial numbers. Accordingly, these shares provide for a high level of anonymity and are easily negotiable.
Nominee shareholders can also be used in privately-held companies to shield beneficial ownership information. The allowance of nominee shareholders undermines the usefulness of the shareholder register or the shareholder list because the shareholder of record may not be the ultimate beneficial owner. Similarly, nominee directors and companies serving as directors of a legal entity may conceal the identity of those persons controlling the company.
Trusts separate legal ownership from beneficial ownership and are useful when assets are given to minors or individuals who are incapacitated. The trust creator, or settlor, transfers legal ownership of the assets to a trustee, which can be an individual or a corporation. The trustee fiduciary manages the assets on behalf of the beneficiary based on the terms of the trust deed.
Trusts can also be misused for illicit purposes. Trusts enjoy a greater degree of privacy and autonomy than other corporate vehicles, as virtually all jurisdictions recognizing trusts do not require registration or central registries and there are few authorities charged with overseeing trusts.
In most jurisdictions, no disclosure of the identity of the beneficiary or the settlor is made to authorities. Accordingly, trusts can conceal the identity of the beneficial owner of assets and, as will be discussed below, can be abused for money laundering purposes, particularly in the layering and integration stages.
Legal entities such as shell companies and trusts are used globally, but because of their ability to hide ownership and mask financial details they have become popular tools for money launderers.
The United Nations that “the principal forms of abuse of secrecy have shifted from individual bank accounts to corporate bank accounts and then to trust and other corporate forms that can be purchased readily without even the modest initial and ongoing due diligence that is exercised in the banking sector.”
The competition among certain states to attract legal entities to their jurisdictions has created a “race to the bottom,” and a real money laundering threat.
While they are often used for legitimate purposes, bearer shares, nominee shareholders, and trusts also provide money launderers with the tools to hide their identity from financial institutions and law enforcement.
As an example, a Delaware-registered company may be owned by a national of any jurisdiction, regardless of his or her place of residence. The company can be operated and managed worldwide, and is not required to report any assets.
Regional criminal organizations were abusing Delaware shell companies for money laundering. The secrecy inherent in Delaware’s regime for legal entities has hindered investigations into suspicious financial activity.
But, Delaware is not the most permissive jurisdiction in the United States with regard to company formation. Both Nevada and Wyoming permit companies to have bearer shares and nominee shareholders, which Delaware does not.
The FBI has found that certain NIS form corporate entities, open full-service bank accounts for those entities, and act as the registered agent to accept service of legal process on behalf of those entities in a jurisdiction in which the entities have no physical presence. An NIS can accomplish this without ever having to identify beneficial ownership on company formation, registration, or
bank account documents.
U.S. shell companies and bank accounts arranged by certain NIS firms are being used to launder as much as $36 billion a year from the former Soviet Union NIS firms are complicit in the money laundering abuse.
Several international NIS firms have formed partnerships or marketing alliances with U.S. banks to offer financial services such as Internet banking and wire transfer capabilities to shell ompanies and non-U.S. citizens.
U.S. banks participating in these marketing alliances open accounts through intermediaries without requiring the actual account holder’s physical presence, accepting by mail copies of passport photos, utility bills, and other identifying information
Suspicious Activity Reports filed by New York banks indicate an increase in the volume of shell company wire transfer activity through high-risk correspondent bank accounts, both in terms of dollar amounts and the number of transactions. These reports indicate that money is passing through correspondent accounts established for Eastern European banks.
Trusts often constitute the final layer of anonymity for those seeking to conceal their identity. Recent changes in the trust laws of some jurisdictions have aided money launderers in their use of trusts to conceal identity and to perpetrate fraud.
In certain jurisdictions, such as the Cook Islands, Nevis, and Niue, the trust laws no longer require the names of the settlor and the beneficiaries to be placed in the trust deed, permit settlors to retain control over the trust, and allow trusts to be revocable and of unlimited duration.
In addition, the amended trust laws typically permit the trust deed to include a “flee clause,” a provision triggered by the occurrence of certain events that directs the assets of the trust to be moved to another jurisdiction and new trustees to be appointed.
A front organization is any entity set up by and controlled by another organization, such as intelligence agencies, organized crime groups, banned organizations, religious or political groups, advocacy groups, or corporations. Front organizations can act for the parent group without the actions being attributed to the parent group thereby allowing them to hide from public view.
Front organizations that appear to be independent voluntary associations or charitable organizations are called front groups. In the business world, front organizations such as front companies or shell corporations are used to shield the parent company from legal liability..
Intelligence agencies use front organizations to provide "cover", plausible occupations and means of income, for their covert agents. These may include legitimate organizations, such as charity, religious or journalism organizations; or "brass plate firms" which exist solely to provide a plausible background story, occupation, and means of income.
The airline Air America, an outgrowth of Civil Air Transport of the 1940s, and Southern Air Transport, ostensibly a civilian air charter company, were operated and wholly owned by the CIA, supposedly to provide humanitarian aid, but flew many combat support missions and supplied covert operations in Southeast Asia during the Vietnam War.
Other CIA-funded front groups have been used to spread American propaganda and influence during the Cold War, particularly in the Third World. US President Obama’s mother Jewess Ann Dunham and grandmother Jewess Madelyn Dunham were part of this.
Many organized crime operations have substantial legitimate businesses, such as licensed gambling houses, building construction companies, restaurants and bars, billiard clubs, trash hauling services, or dock loading enterprises. These front companies enable these criminal organizations to launder their income from illegal activities.
As well, the front companies provide plausible cover for illegal activities such as drug trafficking, smuggling, and prostitution. Tattoo parlors are often used as fronts for outlaw motorcycle clubs.. Colombian drug cartel, the Cali Cartel, in the past used Drogas La Rebaja, now a large national pharmacy store chain, as a front company in order to launder their drug trafficking earnings.
Communist parties (especially Marxist-Leninist ones) have sometimes used front organizations to attract support from those (sometimes called "fellow travellers") who do not fully agree with the party's ideology, but agree with certain aspects of it. The front organization often obscures its provenance and may often be a tool for recruitment.
Other Marxists often describe front organizations as opportunist. The concept of a front organization should be distinguished from the united front (a coalition of working class or socialist parties) and the popular front. Both the united front and popular front usually disclose the groups that make up their coalitions.
One of the most common methods of misappropriating cash from an organization involves disguising a fraudulent disbursement as a legitimate one. A shell company is the perfect vehicle for this purpose. The perpetrator — typically an employee with budget/purchasing authority or someone who oversees and approves the invoices of vendors — simply inserts invoices on behalf of the shell company into the payment system.
Shell companies — and the alleged services they offer — do not necessarily enter a company’s accounts payable system randomly. These entities might hijack the identity of a real vendor in the system by changing an address or payment information.
With this technique, the ideal target is a formerly valid vendor that no longer provides services to the organization, but is still on the company’s list of approved vendors or in the accounts payable master file. Another common method is the creation of a fictitious vendor with a name that is very close to an existing, valid vendor.
In this scheme, the perpetrator arranges for a legitimate vendor to provide goods or services, but directs the vendor to invoice the perpetrator’s shell company. The shell company then invoices the victim organization at an inflated amount, enabling the perpetrator to profit from the markup. Because the expected goods or services are actually delivered and received, detecting these schemes is more difficult.
Many organizations have policies requiring competitive bidding or a minimum number of bids for procurements that exceed a specified threshold. To sidestep these policies and feign a legitimate procurement process, the perpetrator includes phantom bids from shell companies in the procurement files.
The shell companies submit proposals that either offer inflated prices to make the already inflated price of the corrupt vendor look appealing, or they include provisions that disqualify their bids. Either way, the vendor awarded the contract appears to win the bid through a legitimate process.
The perpetrator manipulates the purchase price by splitting the project into multiple, smaller contracts that fall below the monetary threshold that triggers a company’s requirement that a contract be competitively bid.
For example, if competitive bidding starts at a $100,000 threshold, the procurement officer awards what should have been a $450,000 contract as five separate $90,000 contracts. To hide the fact that the same vendor won all five contracts, the perpetrator may establish shell companies on behalf of the vendor so it appears the company made a series of related or similar purchases from different vendors.
Multiple crooked vendors can circumvent an organization’s competitive bidding process if all of the bidders are in on the ruse. This is common when there is a limited pool of vendors, through bid rotation, complementary bidding and other schemes.
If all vendors are in agreement, but only one will win the contract, how do the “losers” benefit from their participation? In some cases, vendors who agree to “lose” show up as subcontractors or suppliers to the winner. But using the real names of the losers looks suspicious. So, they establish shell companies through which subcontract work or supplies are filtered.
Much like the pass-through disbursement scheme, vendors can inflate their billings through the use of shell companies in cost-based or time-and-materials billing situations, such as construction contracts, product development and many others.
Here, the shell company is used to inflate the real cost of materials purchased from legitimate suppliers (or to inflate the real cost of labor billed by legitimate subcontractors). Shells might even be used to pad an invoice for purported materials or subcontract labor that was never provided.
Many Foreign Corrupt Practices Act investigations have revealed the existence of shell companies used to facilitate the payment of bribes to foreign officials. In this scenario, a shell company is established, perhaps posing as a vendor or charity. The company transfers funds to the shell, supported by apparently legitimate documentation.
The shell now serves as the pool of funds which the company makes illegal payments to government officials. On the other end of the transaction, a shell company might be established to receive the bribes and hide the real beneficiary.
The Panamanian law firm at the center of a global investigation advised some clients that they could cloak their money in foundations that named as beneficiaries prominent international charities such as the Red Cross, UNICEF and the World Wildlife Fund.
There’s no sign that any money from those offshore dealings went to the charities, whose spokespeople say they had no clue they were part of Mossack Fonseca’s marketing strategy.
Bill and Hillary Clinton, along with their CHARITABLE nonprofit Clinton Foundation, have established at least five shell companies in Delaware.. All five are filed at 1209 North Orange Street in Wilmington.
The address is shared with companies like Google, Apple, Bank of America, Coca-Cola, Ford, General Electric and more than 280,000 others that use the facility to take advantage of the state's tax laws.
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CAPT AJIT VADAKAYIL