Privacy is one of the main requirements to the assets holding structure made by a beneficiary, i. e. an actual owner (of a foreign company, offshore company, private foundation). Increased privacy:
- The use of nominee services. Appointment of nominee directors and shareholders, whose names will appear in open sources of information.
- Avoiding the use of general powers of attorney. Signing of contracts and resolutions by nominee director, enabling to protect the information on the beneficial owner from the contractors and government authorities.
- Registration of your company in jurisdictions where the information on directors and shareholders is not included in the public register.
- Registration of your company in a jurisdiction permitting the issue of bearer shares, making it difficult to trace the shareholder (the bearer of the share has the owner’s rights). Choosing this option you should realize that the list of such jurisdictions is rapidly reducing now. The trend is that such jurisdictions will not exist over some time.
- Selecting a country of incorporation or the country to open an account, with which the country of beneficial owners’ registration has no intergovernmental agreements.
Factors reducing the privacy of beneficial owners:
- Beneficial owner’s country has intergovernmental agreement on avoidance of double taxation with the country of registration. According to such agreement the tax authorities may request the tax authorities of the contracting state the tax information relating to the application of the agreement. Thus the tax authorities of Russia have the right to request the tax authority of the Republic of Cyprus on existence of a certain taxpayer, whether it pays the taxes or not, how much did it pay, who is the beneficial owner.
- Country of incorporation or of opening an account is a party to a bilateral intergovernmental agreement with Russia on legal assistance in civil, family and criminal cases. It means that if there is a litigation, the court of the Russian Federation may inquire the Swiss courts for assistance, and the latter, having considered the material aspect of the case, at its discretion and having agreed with the reasons, may authorize a bank, a registrar or a public body to disclose a certain information. This arrangement works in case of very serious violations by the beneficial owners only, because the foreign court must consider the case as well.
- Country of incorporation is a party to the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil and Commercial Matters (more than 40 countries, including all of Western Europe). In this case the more complex, but still a simplified procedure is applied for inquiry of the documents for the court in consideration of the case (the Russian Court - Ministry of Justice of Russia - Ministry of Justice or Prosecutor’s Office of a foreign state - Foreign Court - Registrar of Companies or other competent authority of a foreign state). This procedure applies only to information in open sources.
The bodies and authorities, which may keep the information on the beneficial owners and their foreign structures.
- Contractors of the company (offshore company, private foundation), in whose files the beneficial owners and / or their proxies may leave their signature on contracts if acting by power of attorney. If the contractors are overseas, then it is their commercial or professional secret in accordance with the laws and practice of foreign countries. If the contractors are internal (located in the same state as the beneficial owner) it requires more caution, because often the signature of the same country’s resident on a contract may lead to the permanent establishment in this country, the respective tax implications and disclosure.
- Public bodies, to which the client submits information on the offshore company in connection with accreditation of a representative office in Russia, establishment of a subsidiary (or purchase), tax registration for opening an account or purchasing property in Russia, the Federal Antimonopoly Service in case of major transactions, bid and auction committees for the purchase of assets or involvement in projects and so on. It is also possible to protect the information on the end beneficiary using nominee directors and shareholders.
- Registrar of Companies or trade registers in the country of incorporation may contain the information on the directors and shareholders. It is typical for European countries, USA, as well as many former British colonies with similar legislation (Hong Kong, Singapore, Cyprus, Isle of Man, Jersey, Gibraltar etc.). In many more closed jurisdictions the information on the directors and shareholders does not appear in the public register (BVI, Belize, Nevis, St. Vincent, Dominica, Seychelles, Solomon Islands, Marshall Islands etc.).
- Banks, opening accounts for the offshore company. When opening an account the bank is to be reported about the signatory of the account acting in any capacity: director or holder of power of attorney from the director, and about the beneficial owner. As a rule, this information is protected by bank secrecy, but nevertheless it remains in the bank and may be disclosed in case of judicial proceedings.
- Registered Agent, or Secretarial Company, i. e. a person responsible for connection of the company with local authorities. According to the laws of many countries the registered agent must keep copies of corporate records and protocols of the company, including information about or registers of directors and shareholders. But since agent itself is not a public authority, but a private company, its files are subject to the provision of commercial, professional or sometimes lawyer’s secrets.
- The administration company providing services directly to the client and located at the place of the client’s residence, i. e. a professional intermediary between the client and the registered agent. It is important to make sure what information is retained by the administration company and whether the copies of the documents are kept by administration company (in the country of the client) or by registered agent (in the country of registration or in another foreign country). The important question is where the agent, located in the country of beneficial owners’ registration, keeps this information and in which form.
- As a rule, the tax authority of the country where financial statements are filed and taxes are paid (UK, Cyprus, Hong Kong etc.) requires the disclosure of beneficial owners.
- Now any provider of professional services (for example, the auditor) governed by «Know your client» (KYC) rules against the money laundering, international terrorism and so on, must know who is the beneficial owner of this service.