Hidden Assets, Nominee Directors and Ultimate Beneficial Owners (UBOs)

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.

We frequently 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 country’s number-one revenue generator – a virtual ATM machine.

POPULAR OFFSHORE JURISDICTIONS

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:

• the United States,
• the British Virgin Islands,
• the Bahamas,
• Panama and
• Liechtenstein.

The United 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 company’s registered agent. All six of these popular secrecy jurisdictions are included in Cachet International’s 160-country investigative network.)

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 else’s 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.

A nominee 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.

A nominee shareholder is a person who is listed as the ostensible shareholder on a company’s 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.)

Basically, the 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 UBO’s 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 UBO’s 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 company’s 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 company.

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 assets.