Hidden Assets, Nominee Directors and Ultimate Beneficial
Despite their concealment efforts, UBOs can often be identified through painstaking investigative research, potentially leading to the location and identification of their valuable hidden assets.
M. Palmer and Richard L.
July 2016 | More Articles
receive questions about how nominee directors, nominee shareholders, ultimate
beneficial owners, offshore companies (aka IBCs, shell companies, anonymous
companies and exempt companies, to name a few) and hidden assets are related and
what they are about.
First off, while
not everyone who opens an offshore company is involved in illegal activities,
most have one thing in common: They want to conceal their involvement.
Therefore, they choose a location that provides secrecy. This secrecy is
normally provided by an offshore financial center or tax haven. A secrecy
location keeps the names of the actual owners of an offshore company hidden
from the public, and local business laws guarantee the secrecy of company
ownership. In many locations, it is the countrys number-one revenue generator
a virtual ATM machine.
According to a
2013 report by the Tax Justice Network (TJN), the five most popular places
chosen by those who want to conceal their company ownership and assets are, in
order of popularity:
States, with Delaware, Wyoming, the Dakotas and certain other states, is an
attractive offshore location for citizens from countries other than the U.S.
(NOTE: From our professional experience, we would venture to add
that the Cayman Islands pose stiff competition with the jurisdictions mentioned
above, as the Caymans public records do not even reveal the names of a shell
companys registered agent. All six of these popular secrecy jurisdictions are
included in Cachet Internationals
Creating the Offshore Company
After selecting an offshore
jurisdiction, the person or persons seeking to conceal their involvement and
funds open an offshore company. This can be an LTD or LLC (or a series of
them) which will ostensibly own the assets of the ultimate beneficial owner (UBO).
These assets can be tangible and intangible in nature. The company can open a
bank account, buy a yacht or a mansion, and wire money around the world on
behalf of the actual beneficial owner (UBO). Most important, it is immensely
difficult to link the offshore company back to the actual (beneficial) owner.
This makes it an attractive venue for hiding, moving and using money or other
assets, hidden from public sight.
It is quick, easy and cheap to
create an offshore company. In offshore (secrecy) locations, there is no public
information available on the actual (beneficial) shareholders of an offshore
company, because it is the offshore jurisdictions principal goal to provide
hidden ownership to those who seek it generating huge amounts of revenue along
the way. Case in point, 20,000 companies are registered in the offshore location
of the Cayman Islands alone, while its capital city Georgetown has only little
more than 28,000 inhabitants. Another 80,000 are registered
elsewhere on the British Overseas Territories.
Even in countries that do make
shareholder and director information public, it is still easy to create an
anonymous company. This can be done either by listing another company as the
ostensible owner or director (and making sure that the company is registered
somewhere that does not make such information public), or by registering the
company in someone elses name, even that of a total stranger. Astonishingly, it
is entirely legal to do this in the majority of countries, and there is an
entire profession dedicated to providing such nominee services.
When founding off-shore companies, there are two key types of
company persons: (a) nominees and (b) ultimate beneficial owners (UBOs).
Nominee Directors and Nominee Shareholders
The purpose of
these nominees is to protect the identity of the actual ultimate beneficial
owner (UBO) of the offshore company. Further, in most venues, only the names of
the nominee directors are published, and the identities of the actual owners
are protected by local law. Therefore, in an investigation into the activities,
ownership or assets of an offshore company, the nominees who act as ostensible
owners are of no value, as they are simply front men or women with no control
over and no liability for the offshore company.
director is a person or company that acts on behalf of the UBO of an
offshore entity to provide an extra level of secrecy. A nominee director acts on
behalf of the company on paper but exercises no authority over its activities.
shareholder is a person who is listed as the ostensible shareholder on a
companys documents but has no power over the company or claim to its assets.
When the company
is initially registered with the local government in an offshore location,
nominee directors are listed. The nominee director or directors are usually
employees of the law firm or company formation service that formed and
registered the offshore company of interest. The nominees allow their names to
appear on official records, usually for a small fee in many cases, less than
$300 per year. The nominee director has no legal responsibilities in or control
over the company. The nominee directors have no idea who the actual owners of
the company are, and this is so on purpose. (NOTE: We frequently see nominees
who are holding directorships in over 2,000 different companies.)
nominee will be the director (in an LTD) or manager (in an LLC) on public
records for the newly formed offshore company, and any public incorporation
documents will be signed by the nominees, protecting the UBOs identity from
inquiring persons and entities.
In addition, a
nominee director can open one or more bank accounts for the UBO and will operate
the accounts at the UBOs instructions. However, most UBOs prefer not to
lose control of their funds. Indemnity agreements will be signed for the
protection of all parties, and due diligence must be completed.
(NOTE: A UBO can
have a bank account for his offshore company in that companys name or the name
of yet another offshore company that the UBO secretly owns. However, there is
little reason for concern, as no international offshore bank would survive for
long if it divulged to a third party any confidential information about its
account holders. Such information is supplied wholly or in part only if there is
a criminal inquiry, and even then only after due legal process in the country
where the bank account has been opened. Criminal investigations conducted by
foreign governments have shown that the offshore banks will resist as vigorously
and as long as possible before divulging a client’s account information.)
Ultimate Beneficial Owners (UBOs)
The UBO of an
offshore company enjoys the benefits of actual ownership of the company,
while the public ownership of the company is kept in the name of a nominee
director. The true identity of the UBO is normally known only to the owner of
the law firm or company formation service that set up the shell company.
The UBO normally
maintains control over his offshore company by holding bearer shares. Bearer
shares are wholly owned by whoever holds the physical stock certificate.
These bearer shares stock certificates have no name on them, and the
holder of the shares certificate is the actual owner of the company. This
ensures that the ultimate beneficial owner is the one who controls the company,
has the legal responsibility for this company, and controls the assets of the
In some cases,
the UBO of an offshore company can also be another company, trust or foundation
that is owned by yet another UBO. In other words, some persons seeking to
conceal their involvement in a company will use several additional companies as
buffers to provide for multiple layers of protection. We have seen cases where
more than 100 companies in the same number of different jurisdictions provided
the additional layers of protection for one single offshore company.
The Value of Investigative Research
However, in spite of all the layers put in place and concealment
efforts described in this article, UBOs can nonetheless be identified through
painstaking investigative research, potentially leading to the location and
identification of their valuable hidden
To discuss a corporate intelligence or financial
investigation matter, or to learn more about Cachet Internationals
investigative resources in your jurisdiction, contact
Michele Palmer by
email or at
Copyright © 2016 by Cachet International, Inc.
All rights reserved. This article or any portion thereof may not be reproduced
or used in any manner whatsoever without the express written permission of
Cachet International except in the case of brief quotations embodied in
noncommercial uses permitted by copyright law. This article does not constitute
a legal opinion or advice and should not be interpreted as such.