World Money Laundering Report Vol. 2 No. 4

World Money Laundering Report Vol. 2 No. 3 - Kindle edition by Contributors, Nigel Morris-Cotterill. Download it once and read it on your Kindle device, PC.
Table of contents

Thus the court's powers are ineffective in relation to the substantive issues of which it is excluded. Section 5 2 provides for 'A' and 'B' classes of licences, which the Minister may grant. An 'A' class licence is granted to a person 49 who has "an aggregate of his capital issued and paid up in cash and unimpaired reserves of not less than 10 million dollars or an equivalent in a currency approved by the Minister. If deposited with the Central Bank then the authorities will be able to keep control over the amounts of money transferred into the system. Otherwise, the large capital amounts required facilitate the placement process of money laundering, given a company is engaged in criminal activities.

The cash transfers are legal but if that source of money is illegal, then it will constitute the placement of 'dirty money' for laundering. Class 'A' licensee can also operate on-shore banking through an office established and maintained in Western Samoa, with special approval by the Minister. Economic benefits feature more prominently in the Government's fiscal policy than anything else. Once the licence is granted, an class 'A' licensee operating either through its own business office established in Western Samoa or a trustee company 52 is to "recruit and employ all necessary workers on appropriate terms and conditions.

Ultimately hiding the illegal source of the funds. Under section 14, a licensee is required to have its head office in Western Samoa or a "principal office authorised to represent the company to accept legal services and to sue and be sued in the name of the company"; or an authorised agent or person present in Western Samoa. That is, the offshore bankers must have a business representative or make their presence in Western Samoa, which ever will satisfy the legal services requirement for suits if eventuate.

This provides some indication of the activities of the Off-shore Bankers being subjected to the jurisdiction of the courts of Western Samoa. There are two groups of 'B' class licensee, differing in capital issued requirements and types of transactions engaged in. Both licence types are valid for one year periods only and can be renewed upon application.

Section 7 1 a 55 requires from the B1 class licensee "capital issued and paid up in cash and unimpaired reserves of not less than 2 million dollars or an equivalent amount in a currency approved by the Minister" Other conditions, which apply, include restriction on transactions to offshore banking business, transactions in the specified currency, and all business to be conducted through a trustee company. However, this class can apply under section 7 2 , to "establish maintain and operate a business office of the licence holder in Western Samoa" through its trustee company.

This provision makes the distinction between 'A' and 'B1' a legal fiction, in relation to the activities they are permitted to engage in.


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Operations through trustee companies enable the Government to keep track of the activities of its offshore users. As domestic companies, the Government is more able to keep control of their operations as it is subject to the domestic Companies Act NZ and the Trustee Company Act The B2 licensee under section 7 1 b , 56 is required "an aggregate capital issued and paid up in cash and unimpaired reserves of not less than , dollars or an equivalent amount in a convertible currency approved by the Minister.

CONTROL & INVESTIGATION

It is prohibited from servicing cheque account facilities for any of its depositors and not allowed to solicit or accept valuables from the general public. These restrictions narrow the scope of activities of the B2 licensees. The Minister basically has an unfettered discretion as all applications for licensing are subject to his approval and he can even vary or revoke or add any of the terms and conditions to the licence. This discretion is absolute as section 9 6 expressly states that in granting or refusing a licence, the Minister's discretion "shall not be reviewed or questioned in any Court by way of appeal prerogative writ or otherwise.

It may be possible though, for the aggrieved party to apply for a declaratory judgment against the Minister's decision, under the Wednesbury principle. The discretion of the Minister is too wide to be in one person's hands. Perhaps a Board or Committee should be exercising this wide discretion. One of the promotion features of the Western Samoa Off-Shore Finance Center, is the "timely registration of companies with the minimum of red tape. These types are the trustee companies, international companies, international trusts companies, international insurance companies and foreign registered companies.

Trustee companies are registered under the Trustee Companies Act sections 5 and 6. Section 5 permits domestic companies "incorporated under the Companies Act NZ or registered as an overseas company under that Act" to apply to be registered as a trustee company. Applications with the prescribed fees, must be accompanies with an "aggregate capital issued and paid up cash and its unimpaired reserves" of not less than five hundred thousand TALA or an equivalent amount in any other currency approved by the Minister.

Money Laundering 4

An international trust according to section 15 International Trusts Act , is a trust where "at least one of the trustees, donors or donees of a power Under section 19, registration is deemed to have taken place when the Registrar has signed and entered a memo of the name and particulars of the trust. Annual registration is required at the end of every 12 months from the previous date of registration.

As for international companies, these are incorporated and registered under section 7 International Companies Act 64 , with a certificate of incorporation issued for a period of 12 months only. This Act allows for long term international companies to be registered for 5, 10 or 20 years and for the registration of foreign companies, which want a permanent establishment in Western Samoa.

It further provides for "a company incorporated else where to be re-domiciled in Western Samoa and vice versa. International insurance companies are registered under sections International Insurance Act Section 4 requires any person conducting any "offshore insurance business in or from within Western Samoa" to hold a valid certificate of registration issued under this Act. Applications made to the Registrar of Companies, under section 5, must be accompanied with a "certified copy of the Act, charter, deed of settlement, memorandum of association and articles of association, the prescribed fees, evidence of nature and character of the applicant's business, financial standing, shareholding and management, ultimate beneficial ownership of stocks and shares, the address of its registered office and any other documents and references as requested by the Registrar.

All these information will enable the authorities to make an informed decision on whether or not to accept that company. Applicants have to be either an international or a foreign company 67 and such certificate of registrations if granted is valid for 12 months only, renewable for another 12 months. The growth of the Western Samoa offshore sector has been gradual with an "average of companies registering each year. This is indeed advantageous for the promotion of the OffShore Finance Center. However, the time frame of at least 24 hours for registration, may not be sufficient time for Central Bank officials to check on the source of funds of applicants or to verify their documents.

This check is important, as it is an indication of whether or not any placement has taken place, especially with the requirements for large capital issued to be paid in cash. Once the illegal source of funds is ascertained, then declining that company's application for licensing or registration can prevent placement. The licensing and registration provisions should also require the disclosure of the source of funds and the ultimate beneficiaries of trust, or insurance policy or bank account. Of course that information will be subject to secrecy to the Central Bank officials only.

The three main financial services offered are; offshore banking, offshore insurance and international trusts, as prescribed by legislation. The areas discussed are; confidentiality guarantee, share capital maintenance, offshore insurance, international trusts, taxation exemptions and exchange control exemptions. Using a multitude of financial service facilities with links to all these countries, it is possible for money laundering operations to filter through Western Samoa. In particular where these financial facilities are to secretly and securely hold assets in a tax free environment in a variety of investment structures thereby minimizing taxation, ensuring asset protection and providing access to investment opportunities which may not be available onshore.

These banking services include accepting deposits in current, savings and deposit accounts, which facilitate placement given there is no reporting requirement imposed on Offshore Banks. That is, there is no statutory limit on the amounts that can be deposited into an account. Dealings can also be done in a variety of instruments such as bills of exchange, promissory notes, and bills of lading, whether negotiable or transferable or not. Further, acquisition, holding and issuing of debentures, debenture stock, bonds, obligations and securities are permitted.

These are ideal for the layering process, where the illegal money is re-invested in other asset forms. With no statutory currency reporting requirements imposed on offshore bank licensees, there appears to be no control on the flow of money in and out of the Center. Without some form of control, the Center authorities will never be able to detect money laundering activities.

World Money Laundering Report | Page 23 | Please Be Informed

The Off-Shore Banking Act , also permits the licensing of captive or inhouse offshore banks which are permitted "to raise funds from their shareholders or specifically nominated associated depositors. Further, the Minister of Finance may exercise his discretion to allow offshore bankers to engage in other 'business outside the customary scope of the business of banking. The dichotomy between confidentiality and disclosure in relation to information passing between offshore banks and its customers, is important as it is the secrecy element that provides the niche for illegal activities such as money laundering to flourish.

It is implied that that a banker will not divulge to third persons any information on the "customer's account, or any of his transactions with the bank, or any information relating to the customer acquired through the keeping of his account. These common law principles are safeguarded under the offshore banking legislation of Western Samoa as an attraction. Section 25 Off-Shore Banking Act , expressly states that the Minister, the Central Bank officers and any Government officials engaged in the regulation of the operations of the Off-Shore Finance Center "shall not reveal any information to any person.

The exception being where the Minister "may publish a consolidated statement aggregating the figures in the statements or returns. Section 26 77 makes it an offence where professional secrecy is breached and is punishable in court for a "term not exceeding 5 years, or to a fine of 50, dollars or both. It also includes any "attempts to induce others to breach professional secrecy" in such matters. These secrecy provisions extend beyond the employment period of the official concerned, hence they are effective.

On the other hand, it provides the perfect secretive environment needed by money launderers to transfer their illegal proceeds and invest it into the system. However there are recognised exceptions under section 26 3 81 which allow for disclosure. It is not an offence where information is divulged to the Central Bank 82 , the client, local representatives of the licensee and employees of an overseas financial institution with the consent of the licensee.

The disclosure of certain information is too sensitive that it requires the prior written approval of the Minister of Finance. Thus secrecy provisions are paramount as disclosure is limited to certain cases and sensitive information still requires the Minister's approval. In the case of international companies, the "principle of capital maintenance is abolished in favour of a solvency test in regard to any distribution of capital or reduction of liability in respect of capital.

Those international companies engaged in criminal activities are then able through being licensed in the Western Samoa Off-Shore Finance Center to filter illegal proceeds into the system for 'laundering'. The fact that details for allotments and redemptions of shares are not required to be filed with the Registrar, means that any illegal activities engaged in will not be easily detected and prevented. Offshore insurance services are provided under by the International Insurance Act International companies and foreign companies registered under the International Companies Act , may apply to the Registrar of International Insurance to carry out the business of offshore insurance.

Applicants are required to maintain high capital requirements for issued capital and unimpaired reserves. Reinsurance services involve small companies insuring their clients assets' with larger insurance companies where the latter has the finance to cover the risks insured. Captive insurance services involve accepting premiums from a limited group of companies or related parties.

There is also no requirement to maintain any margin of solvency. As the nature of this service demands, insurance, reinsurance or captive insurance thus provides legal facades for illegal proceeds of money launderers to filter into the system. There is neither ceiling on the amounts or restriction on the assets types to be insured, hence it provides the ideal investment structure for illegal proceeds. Any trustee company, international company or a registered foreign company, can register to operate as a trustee for an international trust created by the process of registration under the International Trusts Act The beneficiaries are at all times non-residents of Western Samoa.

If either of these companies is operating as an international trust it is not required to file any accounts or reports at all with the Registrar of International Trusts. This provides the anonymity of beneficiaries of a trust which could possible include undesirable companies, businesses or individuals. Further, no records of international trusts transactions are required to be kept or filed with the Central Bank.

World Money Laundering Report

This lack of disclosure of information to the Registrar of International Trusts, in relation to the filing of accounts and reports, makes it difficult for auditors to audit trust accounts for possible fraud and illegal activities. The Act provides minimal asset protection.

It does not invalidate a trust where the settlor has become bankrupt, so that the assets kept under the trust cannot be touched by the creditors or anyone else. Also where creditors allege that the settlement was made with intent to defraud them, the onus is on the creditors to prove it. These asset protection features assist the situation of money launderers.

A significant feature of the International Trusts Act , is the ability to form and register non-charitable purpose trusts. This allows a trust to be created for a specific purpose and without the need for a specific or identifiable class beneficiary. This type of trust is becoming an important vehicle for tax planning arrangements and for holding voting shares of a company.

This makes it possible for a purpose trust to own the shares in a private trust company, which then acts as trustee for a family or shareholders trust. The ultimate beneficiary will never be known. The tax free environment is ideal for the free in-flow and out flow of criminal proceeds for laundering, without losing its value. Tax exemptions ensure the unrestricted accumulation of wealth. There is no withholding tax on dividends, interest or royalties paid to shareholders of offshore companies.

There is full stamp duty exemption on contracts entered into by offshore companies, and total capital gains tax exemption on capital gains. Section 24 International Trust Act , exempts international trusts from paying tax on profits or dividends paid out The same applies to the income of a foreign company incorporated. Section 28 Off-Shore Banking Act , provides for no income tax, or any other direct or indirect tax, or duties levied "on the profits or gains or interest earned or dividends earned by a licensee or on dividends paid to a depositor by the licensee, in respect of the offshore banking business it does from within Western Samoa.

However, under Section 22 Trustee Companies Act the income of a registered trustee company, "being a locally registered company, remains liable to income tax except where it relates to dealings on behalf of an international or registered foreign company. In practice, this provision is difficult to exercise and control because trustee companies can claim that a transaction was done on behalf of an international company or a foreign company. It is difficult for the Inland Revenue Department to determine what transactions are for offshore purposes only and which ones are for the local operations of that domestic company.

The commonly asked question is, whether offshore banks are set up for tax evasion. Most offshore banking centers "require little or no tax for businesses in their regime" 91 , this is tax avoidance which is perfectly legal. Provisions like section 28 92 permits no tax to be paid so long as the licensee is engaged in offshore banking business. Thus offshore finance centers condones tax avoidance schemes but not tax evasion.

However a possibility for tax evasion may arise where Western Samoa is not a signatory to any 'Double Taxation Treaties' 93 which would allow the offshore company to be taxed in the offshore center. Nowhere is this more evident than in the use of offshore companies. Section 30 Off-Shore Banking Act , states that all offshore banking business "shall be exempted from any currency and exchange control restrictions or regulations" and from any ''foreign exchange levy.

This exemption allows for the free flow of large sums of money in and out of the Western Samoa Off-Shore Finance Center. This provides the perfect avenue for criminal proceeds to flow into the center where it can be invested and dealt with through legal means so as to 'launder' it before being extracted as profits on investments or as dividends on shares.

The main effect of this absence of exchange control is that it reduces control over capital retention as assets freely flow in and out of the economy. No country, which is integrated into the international financial system, is going to escape the attentions of money launders.

The dismantling of exchange controls and taxes, reduction in capital requirements, availability of purpose trusts, all facilitate the mobility of cash flows. It is naive then to think that the Western Samoa system is safe from intruding money launderers. This chapter analyses two important incidental roles of companies operating within the Off-Shore Finance Center. That is, the role of trustee companies as nominee shareholders or directors and of companies in transfer pricing. The three main companies are the international companies limited life and long term , registered foreign companies and trustee companies.

Any of these can be registered and licensed as an offshore bank licensee, an international trust licensee or an international insurance licensee. A trustee company is the "one domestic entity necessary to service the international companies under the scheme. Their main role as the middle man between the Government of Western Samoa and international companies, 99 is to ensure that all requirements under the offshore banking legislation are complied with and that all applicants are financially sound. It can be held liable where its clients disclose false information.

Thus it provides the link between the services offered by the Center and money launderers. In relation to international or registered foreign companies, the trustee company's role is to provide nominee corporate services.


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    8. Upon application for licensing and registration it enters itself as the sole subscriber or nominee company "acting on behalf of the beneficial owner, whose name need not be disclosed. The effect is that often the "beneficiaries are unknown, the shareholders elusive" and the directors are law firms registered to carry out the business of trustee companies.

    Under section 2 e ii Trustee Companies Act a trustee company can provide directors.

    They can also appoint their subsidiaries as nominees instead. This in turn facilitates the placement and layering of money laundering. As a nominee for the international company, it deals directly with bank transactions where large sums of cash are deposited into numbered accounts, or in arranging purchases of investment bonds or real property.

    These transactions provide legal means to 'place' illegal proceeds as it is disguised by changing its form to another asset type. That money will later on be invested or used for other transactions, thus legitimizing its illegal source. This is further facilitated by the trustee companies' interaction with the local professional firms on behalf of its non-residents clients, by providing; accounting, legal and auditing services, banking facilities, certification and notarisation services.

    All of which provide a complex layer of financial transactions permitted by the offshore banking legislation which facilitates 'placement' and 'layering', making it difficult for the audit to track down illegal funds filtering into the system. The role of trustee companies in essence, provides the anonymity required by offshore users who engaged in money laundering, and services the financial and legal services needed for the 'placement' and 'layering' of illegal proceeds. Companies licensed or registered to carry on business within the Western Samoa Off-shore Finance Center, are either a subsidiaries Shore or the parent companies of the multinational corporations engaging in businesses worldwide.

    In most instances, the parent company is located in a heavily taxed country with subsidiaries spread out in countries with low or no tax regimes. This web allows for intra-group pricing arrangements which are '. In the cycle, offshore finance centers facilitate the transfer with its attractions of taxation and foreign exchange exemptions, exploited by these non-resident companies to their advantage.

    This practice is not illegal and is of no concern of the Inland Revenue Commission in Western Samoa as offshore users enjoy total tax exemptions under the offshore banking legislation. Nevertheless, the practice of transfer pricing provides a perfect avenue for proceeds of criminal activities to filter into the Off-Shore Finance without detection or suspicion.

    This is a concern which is difficult to regulate through any Transfer Pricing Legislation , but one which the Central Bank of Western Samoa should consider carefully and find ways to monitor such activities as it could be used as a mechanism of achieving the 'placement' and 'layering' processes of money laundering. Overall the roles of companies within the Center is to provide financial services for "people seeking to reduce withholding taxes" or taxes on dividends in order to make large profits, companies involved in international trade; "families settling aside assets for generations.

    So far as vetting clients is concerned, it is ineffective, as the offshore banking legislation does not mandate the disclosure of the "source of funds and the identity of the beneficiary. This analysis has identified areas, which the current offshore banking legislation does not address due either to inadvertence or to the desire to provide services without much restriction. Leyshon et al Money, Information and Uncertainty. Goodhart Fighting money laundering. Schaap Federal Money Laundering: Bernasconi et al Responding to money laundering — International perspectives: Savona et al European Money Trails.

    Savona et al How not to be a money launderer 2nd ed The avoidance of fraud and money laundering in your organisation. Another internet bank promotes services that seem to make no commercial sense. Practical information - How to launder USD10, without anyone noticing. Read more Read less. Kindle Edition File Size: Vortex Centrum Ltd; 10 edition 31 December Sold by: Customer reviews There are no customer reviews yet.

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