Best Place to Launder Money (Surprisingly)

Best Place to Launder Money (Surprisingly)

By Mark Nestmann • January 26, 2016

I’m in the executive lounge at Princess Juliana International Airport in St. Martin drinking double espressos and waiting for a connecting flight to Charlotte. It’s the end of a 10-day whirlwind trip through the Caribbean, where I was once again reminded how much stricter the due diligence and know-your-customer rules are offshore than they are in the US.

The first five days in the region were spent in Nevis, where I serve as president of Fortress Trust Ltd., a licensed agent for Nevis international trusts, LLCs, and corporations. I was hoping to use my time there to set up a marketing plan and launch our website. Instead, I spent most of my visit dealing with compliance issues.

The trend toward stricter compliance in offshore company and trust formation and operation is driven by constantly evolving guidelines from a shadowy organization called the Financial Action Task Force (FATF). Housed in Paris within the spacious offices of the Organisation for Economic Co-operation and Development, the FATF is the self-appointed watchdog to spearhead the global fight against money laundering. Its supposedly “non-binding” guidelines are anything but non-binding, and woe to any offshore jurisdiction that fails to heed them. Jurisdictions the FATF calls “high-risk” or “non-cooperative” risk severe sanctions, including exclusion from global electronic money transfer networks such as SWIFT.

For instance, the FATF recently called on its members to beware the risks emanating from the economic powerhouses of Algeria, Ecuador, Myanmar, Suriname, and Vanuatu. In the case of Vanuatu, with a GDP less than $1 billion, the FATF says the country has “inadequate” criminalization of money laundering and terrorist financing. It also has “inadequate” customer due diligence requirements. It is apparently difficult or impossible for law enforcement agencies to identify the beneficial owners of Vanuatu-registered entities. Since Vanuatu has failed to display the required obsequiousness to these demands, the country is now subject to “further action and scrutiny.” In the worst case scenario, Vanuatu, like Iran and North Korea before it, could be excluded from the global electronic money clearing system.

You could be forgiven for thinking that the FATF’s obsession with small, out-of-the-way jurisdictions like Vanuatu is because larger countries have perfect records when it comes to customer due diligence, identification of beneficial owners, etc. But that’s not the case at all. Indeed, when the FATF evaluated the US, a country with a GDP roughly 25,000 times Vanuatu’s, it reported that several states impose no obligation to record the name of any shareholder or beneficial owner when establishing either a corporation or an LLC. Indeed, setting up a company in Delaware and other US states requires less information than signing up for a library card.

Even the anti-offshore Tax Justice Network concluded in a 2009 report: “The major global players in the supply of financial secrecy are mostly not tiny, isolated islands, but rich nations operating their own specialized jurisdictions of secrecy.”

That’s more than a bit ironic, since the US provides the largest share of funding to the OECD, which in turn funds the FATF. And the results speak for themselves: it’s the US, not offshore jurisdictions like Vanuatu, that’s the global leader in laundering money.

A case in point involved HSBC Holdings. For years, the US division of this bank provided customized money laundering services to various Mexican drug cartels. The bank even facilitated bulk cash shipments from Mexico to the US. It also handled billions of dollars of transactions with Iran and North Korea, both under strict sanctions by the US Treasury and the FATF. It even worked with Al Qaeda and Hezbollah.

If this activity had occurred in Vanuatu or any of a host of smaller international financial centers, the FATF would have had a field day. The bank would surely have been stripped of its license and top executives subjected to criminal prosecution. And Vanuatu itself would likely have suffered the fate of North Korea and Iran, banished from global money transfer networks.

But not in the US. In December 2012, the Department of Justice (DOJ) quietly announced that HSBC had agreed to pay a $1.9 billion fine and admit that it had inadequate compliance and anti–money laundering controls in place. This sum amounts to about a month’s worth of profits for the bank. No one at HSBC faced criminal prosecution for this activity; the bank was indeed, as some pundits remarked, “too big to jail.”

Another “too big to jail” bank is Standard Chartered Bank. In 2012, it entered into a deferred prosecution agreement with the DOJ. The agreement acknowledged a deliberate, widespread, and years-long conspiracy "to engage in transactions with entities associated with sanctioned countries, including Iran, Sudan, Libya, and Burma" involving at least $227 million. But instead of seeking criminal sanctions against the bank and those executives overseeing this conduct, the DOJ imposed a fine equal to the amount allegedly laundered: $227 million, about two weeks worth of profits for the bank.

More recently, in 2015, the FIFA (Fédération Internationale de Football Association) bribery scandal erupted. The DOJ indicted 14 current or former FIFA officials for wire fraud, racketeering, and money laundering. The DOJ claims that the accused relied on the use of “trusted intermediaries, bankers, financial advisors and currency dealers, to make and facilitate the making of illicit payments.” The banks involved are among the largest doing business in the US, including JPMorgan, Bank of America, HSBC, Citigroup, and Standard Chartered. But none of the banks or the executives who presumably approved their misconduct have been indicted.

Indeed, the evidence suggests that the US has neither the intention nor the incentive to end money laundering. Rather, it seeks nothing less than a monopoly in it. It pursues this monopoly by forcing non-US financial institutions to impose much stricter rules than those that are enforced domestically. That’s especially true when it comes to the most profitable customers of US banks: rogue nations, drug cartels, and the like.

As the president of a small offshore services provider, it makes my blood boil to see this double standard in action. But does that mean US persons seeking privacy and asset protection should keep all of their assets in the US?

Not at all. The US legal framework developed to combat money laundering is by far the world’s strongest. But it’s used against ordinary citizens and businesses, not “too big to jail” banks. For instance, under US law, depositing or withdrawing your own lawfully earned, after-tax dollars from a US bank can constitute money laundering. The government can confiscate your bank account if you don’t do it the right way – and the bank isn’t allowed to inform you what’s legal and what’s not. It can even confiscate your home if police allege it “facilitated” any kind of illegal conduct. You don’t need to be found guilty of a crime, or even accused of one, to lose your assets.

In this scenario, going offshore isn’t a luxury; it’s a necessity if you’re serious about preserving your assets. You won’t be able to do so anonymously, and you may be frustrated by the due diligence hurdles you must overcome to open an international account, create an international trust, or otherwise conduct international business.

But with the dollar at a 10-year high versus most global currencies, there couldn’t be a better time than now to begin your offshore journey.

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

Feel free to get in touch at service@nestmann.com or call +1 (602) 688-7552 to learn how we can help you.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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