It is notable that the development of the so called "unco-operative jurisdictions" is no longer tied to the term "offshore" but is, basically, countries that have no Financial Intelligence Unit that complies with the Egmont Group definition.

And, several months ago, the OECD produced a report upon "Harmful Tax Practices" that made it clear that there was no doubt: one country - or group of countries - will now attack others for the sole reason that they offer a favourable tax regime.

The EU's Helsinki summit in December 1999 was overshadowed by the British Government's refusal to permit the passing into EU federal law of a withholding tax on investment income. As WMLR reported in Vol1, Issue 1, the UK is being turned into a low tax economy for those who live elsewhere.

But the range of services offered to those who would use international tax strategies for tax avoidance, evasion or even fraud and money laundering is not restricted to the so-called offshore centres.

Enquiries of a company formation agent in Dublin, Ireland, about the formation of a vehicle to disguise the ownership of a company were met with no question of concern. A company could be formed in Ireland, having offshore tax status and so paying no tax in Ireland, with no enquiry as to identity. For a small fee, a bank account could be opened for the company before it was transferred to the new owners. The only issue was that even though nominee shareholders could be arranged, the directors of the company would be liable for UK tax on the company's profits if their involvement were known. For a further small fee, the company could arrange nominee directors based in the Isle of Man, and no tax would fall due. Registered office facilities, with mail forwarded unopened, were also available in Dublin for a small charge.

The use of nominee directors for companies in which they have no real interest is, in the British Isles, called "The Sark Lark" and in January 1999, the DTI secured an order in the High Court that the term "nominee director" had no place in English Law.

The case involved one Philip Crowshaw, a resident of Sark. He was the sole registered director of a company called Oldham Vehicle Contracts Limited , resigning a few weeks before the company was wound up under a compulsory winding up order. Crowshaw charged Oldham Vehicle Contracts Limited £200 per annum. He was also a director of more than 1300 companies and had resigned from more than 280 more. 16 companies of which he was director had gone into some sort of insolvency prior to the hearing of the instant case.

Crowshaw admitted that he had taken no part in the management of the business and had taken no steps to monitor, supervise or control those who ran the business not made any enquiries about the business, its finances or dealings. Of course, it is not known whether Crowshaw made any enquiry of Jeremy Vass who in fact ran Oldham Vehicle Contracts Limited as to his own background. Vass was already disqualified from being a company director following previous insolvencies.

In a strong indication that he regarded such activities as an abuse of the protections offered to those running limited companies, the Judge said that it was important that people got the message that the office of director is one that carries responsibilities. The Court would not, he said, tolerate the total abrogation of those responsibilities. Crowshaw was banned from being a company director in the UK for 12 years.

The decision is, of course, at first instance and so is merely persuasive on courts in other jurisdictions. The decision does not mean that the "Sark Lark" is automatically dead - there are plenty of other jurisdictions where nominee directors are engaged. However, there are clear warning signs that the use of anonymous companies will be examined carefully. It is important, however, to realise that as a Court decision, and not a statute, it falls within the Common Law and so may be applied in any jurisdiction that regards Common Law as its basis. That includes the Commonwealth and many countries that no longer have formal ties with the UK, including Ireland and the USA. It even includes Hong Kong the law of which remains, at present at least, based in Common Law.

The evidence gained by WMLR when investigating the simplicity of forming what would amount to an anonymous company was despite the declared intention of the Irish Government to make sure that company formation agents would be required to bring within the scope of anti-money laundering legislation the activities of that sector. It is notable that the Jersey laws include company formation agents in the requirement to identify their customers, despite the criticisms often levelled at that jurisdiction.
Companies set up to hold assets in a jurisdiction where they do not operate are often called "international business corporations" or "IBCs" and most so-called offshore jurisdictions have them, or something similar. And it is common to find advertisements in reputable magazines and newspapers for company formation agents who will form companies in those jurisdictions and offer a range of supporting services.

The Oldham Vehicle Contracts case was different to the IBC in that the company was registered in the UK and traded in the UK. If an IBC has any trading activity it will maintain its tax free, or low tax, status only for so long as it does no business in the jurisdiction where it is registered.

Of course, what is often found is that IBCs have no trading activity of any kind and are merely a shelter for funds transferred from elsewhere.

It is the use of IBCs shielded behind trusts, or where the directors and shareholders are trust companies or lawyers, that has led to much of the criticism of "offshore " jurisdictions. Lawyers, and often trust companies, are required to maintain confidential the affairs of their clients, prevented even from disclosing the identity of those clients.

It is the use of the trust, especially one with a relocation clause, that causes great problems for investigators.

A relocation clause empowers the trustees to immediately create another trust in a different jurisdiction if any enquiries are made of them about a trust they operate. They are empowered to transfer ownership of all and any assets of the original trust. Moving assets and trust control in this way makes investigation trails difficult to follow and causes delay as fresh proceedings have to be brought in each jurisdiction to "bust the trust."

In fact, some people make a point of selling this service. An American lawyer writes dozens of little books that encourage the use of offshore trusts. In them he explains why an offshore trust is valuable. They can, he says, provide full protection against claims by creditors and wives, with discretionary trusts, even if found, having no obligation to pay moneys to the beneficiary. And by the time an investigator has obtained a Court Order for disclosure, the trust can have been wound up and a fresh one begun in another jurisdiction.

And now a leap into the dark: based on current knowledge, the main complaint about "offshore" jurisdictions is a complaint about tax evasion. Because governments are wary about being seen to be too hard on revenue cases, they have hidden their complaints behind legitimate (but smaller) concerns about laundering the proceeds of crime. Those governments know that, were they to say they were trying to control the laundering of evaded taxes, they would risk public displeasure as a large percentage of the population in every country would rather evade tax than pay it, if they thought they could get away with it and most have a grudging respect for the person who does manage it. "Good luck to him" is a common reaction.

As reported in WMLR Vol 1, Issue 2, the Edwards Report into the UK's offshore centres in the Channel Islands and the Isle of Man was a predominantly Treasury driven report. Money laundering issues were given a back seat. But there is a dramatic flurry of activity now. The OECD report mentioned above, the recently announced British Government report (similar to the Edwards Report) to be commissioned into the British Caribbean jurisdictions, the questions raised at the World Trade Organisation and more seem to be driven by a new imperative. But the difference now is that tax harmonisation (that is the removal of jurisdictions to set their own tax regimes other than within internationally imposed parameters) is clearly on the agenda, and is clearly the motivating force.

So what has changed in the past couple of years to bring this about?

The simple answer is "The Internet."

No longer is it necessary to maintain your back office and profit centre where your physical business - and even your managers - are based. It is simple to put your servers in a no or low tax jurisdiction. The server merely operates a function of receiving and passing on orders. Data is maintained from a distance (using simple File Transfer Protocol or FTP software). But the really clever, tax avoidance, step comes by billing the customer from the offshore centre and paying your onshore company a small margin, so keeping the bulk of the profits offshore. Consultancy services can be delivered in exactly the same way and as consultancy has, generally, a higher value added than goods, the scope for expatriation of profits is immense.

And, of course, expatriation of profits means loss of tax revenues. Services bought in from a jurisdiction where there is no value added tax or similar can be sold to end-users at a rate far undercutting those charged by onshore businesses. Small shipments of goods are, individually, not worth Customs charging on, but sold locally, the tax collected can be substantial. So, low value retail goods such as CDs, small electrical goods and other things can, in volume, result in significant reductions in revenues.

Consquently, as low tax jurisdictions begin to move into provision of internet based services, the impact on high tax economies will be substantial. It is this that is driving the current paranoia, and which is being targeted at those jurisdictions usually called "offshore".