OFFSHORE INC. Miranda Patrucic, OCCRP

Top Offshore Centers JurisdictionOffshore BanksIBCs/Exempt and/or Restricted Companies Cayman57050,951 Bahamas413100,000 Nauru400 Luxembourg20068,000 Hong Kong474,500 Panama34372,667 British Virgin Islands13360,000

Offshore Bank  Bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages:  Greater privacy  Low or no taxation  Easy access to deposits  Protection against local, political, or financial instability  Offshore banks are exempt from a wide range of regulations normally imposed on “onshore” institutions:  Their transactions are tax-exempt  Not encumbered by reserve requirements  Free of interest-rate restrictions  Often exempt from regulatory scrutiny with respect to liquidity or capital adequacy

System Tailor Made for Criminal Purposes  While mother banks accept the appropriate set of standards in their home base, in heaven jurisdiction they act in a less scrupulous manner  Banks can be set up with relative speed and ease and a minimum of due diligence investigation – as long as they meet a basic level of funds  Ease of establishing an offshore company: Typical add: “offshore companies are beyond the control of one’s own government, are protected from government rules, regulations, and taxes, facilitate business under less stringent regulations, and offer a high level of confidentiality”

System Tailor Made for Criminal Purposes  Existence of unregulated financial players (i.e. trust companies, brokerage houses, money exchange houses) that can move money with ease, speed and no oversight  Trust schemes which allow the person who sets up the trust to also be beneficiary  Lack of cooperation with law enforcement (opportunity for money to be moved to another jurisdiction)  Mobile accounts (criminals will open an account in one jurisdiction, but with instruction for any incoming funds to be transferred immediately to another location, in case of any inquiries, bank in the second location must be informed)

System Tailor Made for Criminal Purposes  The availability of casinos (criminal takes a big pile of money, buys some chips, play a bit, than take the chips back, casino gives him bearer check which amount of money that is called casino winnings)  The availability of free trade zones (laundering operations are located within legitimate business, money can be used to buy legitimate goods and resell them in the home country)  Facilitating role of agents (financial consultants, lawyers, accountants, professional money laundering specialists)

Offshore Companies  Every year $1 trillion flows out of developing countries into offshore accounts  Shielded behind a veil of secrecy and high-paid lawyers and proxies criminals are using offshore heavens as fronts for drug, and weapon smuggling, privatization frauds and white collar crime Hiding assets Money laundering Tax evasion

Sinaloa drug cartel Muslim militant group Hezbollah Russian crime networks

Criminal Service Industry Company formation agents Accountants Lawyers Offshore company Company’s proxies Agent Shareholder’s proxy

Proxy: a person who knowingly or unknowingly acts on behalf of someone else hiding their real identity.

How Does It Work?  Shareholder’s proxies receive shares in the company in their name and they appear in all the paperwork.  However, they sign an undated document that transfers their shares to the real owners.  Simply by adding the date, (the real owners) can become the company shareholder at any time.

And director?  Real director of the company can request a general power of attorney from the designated director, which would give him full power. Thus, he will act as the company director, without being mentioned as such in the offshore company documents.  Real director of the company can pay designated director to do what he tells him to do. An undated, blank resignation letter represents a guarantee against possible abuse. The director can be dismissed and all decisions made after the date written on the resignation letter are rendered null. or

MONEY LAUNDERING Miranda Patrucic, OCCRP

Money Laundering  Money laundering is the criminal practice of processing ill-gotten gains, or “dirty” money, through a series of transactions; in this way the funds are “cleaned” so that they appear to be proceeds from legal activities.  Money laundering generally does not involve currency at every stage of the laundering process.

Illegal Money Drug trafficking Counterfeitin g SmugglingTheft EmbezzlementRacketeeringTax evasionKidnapping Illegal arms sales Bribery Illegal trade of cultural property ….

The Money-Laundering Cycle

Three Stages of Money Laundering Placement Initial injection of illicit funds into the financial system Purpose is to separate illicit funds from their illegal origins. Layering Multiple layers of transactions that further separate funds from their illegal origins Purpose is to make it difficult to trace the funds to their illegal origins. Integration Reintroduction of illicit funds into legitimate economy. Purpose is to allow criminals to use the funds without raising any suspicion.

Placement  Depositing cash into an account or into several accounts in different locations  Paying cash for bank drafts, traveler's cheques, and other value instruments  Purchasing items of value for cash (such as works of art, antiques, motor vehicles, and so on) for the purpose of selling them  Commingling criminal cash with legitimate cash in a business account  Converting cash in one currency into another currency

Layering  Wiring payments to and from various accounts (personal and corporate) in different jurisdictions  Buying, then selling, an investment product  Buying and then surrendering a single-premium insurance contract  Engaging in international trade transactions  Making other types of payment where funds move from one account to another

Integration  Purchase of property (for personal use or investment)  Purchase of other high-value items, for example, jewelries, antiques, works of art  Purchase of legitimate businesses  Purchase of investments for income  Any purchase for personal use with a cheque, credit card, or other payment method

Why Should U Care?  Is a global threat  Is fuel to expand criminal enterprise  Helps hide corrupt payments  Uneven playing field for honest business  Risks for financial systems & institutions-erodes integrity  Economic:  Deters private investment  Destroys competition  Revenue impact  Financial:  Perpetuates corruption, obstructs good governance  Erodes confidence  Destabilizes financial institutions

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