Treasure Islands - Nicholas Shaxson [28]
What a trust does, at heart, is to manipulate the ownership of an asset. You might think ownership is a simple thing: you have, say, a million dollars in the bank; you own it, and you can save it, or spend it, or take it out in ten-dollar bills and put it in your bathtub. But ownership can, in fact, be unbundled into separate strands. This happens, for example, when you buy a house with a mortgage: Until you repay the loan, the bank has some ownership rights over your house and you have other rights.
A trust unbundles ownership into different parts very carefully. When a trust is set up the original owner of an asset in theory gives it away into a trust. The trustee becomes the legal owner of the asset—though this person is not free to spend or consume it—for they must legally obey the terms of the trust deed, the instructions that tell them exactly how to share out the benefits to the beneficiaries. The trustee must obey these instructions, and apart from fees he or she may not receive any of the benefits. So a rich old man with two children might put $5 million into a bank account owned by a trust, then appoint a reputable lawyer as the trustee, instructing him that when the son is twenty-one he should receive half the money, and when the daughter later becomes twenty-one she should get the rest. Even if the wealthy man dies before the money is paid out the trust will survive, and the trustee is bound in law to pay out the money as he is told. It is very hard indeed to break a trust.
Trusts can be legitimate. But they can be used for more nefarious purposes, like criminal tax evasion. When a trust sets up solid legal barriers separating out the different components of ownership of an asset, these barriers can become unbreakable information barriers too, shrouding the assets in secrecy.
Imagine that the assets in a trust are shares in a company. The company may register the trustee—the legal owner—but it will not register the beneficiaries—the people who will be getting and enjoying the money—anywhere. If you have a million dollars in an offshore trust in the Bahamas and the tax inspectors come after you, it will be hard for them to even start their inquiries: Trust instruments in the Bahamas are in no official register. Even if the tax inspectors or police get lucky and find out the identity of a trustee, that is likely to be simply a Bahamas lawyer who does this for a living, who may be the trustee for thousands of trusts. She may be the only other person in the world who knows you are the beneficiary, and he or she is bound by professional confidentiality to keep your secrets safe. The tax inspector has hit a stone wall.
You can make this secrecy deeper still, of course, by layering one secrecy structure on another. The assets in the Jersey trust may be a million dollars in a bank in Panama, itself protected by strong bank secrecy. Even under torture the Bahamas lawyer could never reveal the beneficiary because he or she wouldn’t know.17 Such intermediaries merely send the checks to another lawyer somewhere else, who also isn’t the beneficiary. You can keep on going: layering the Jersey trust on another trust in the Caymans, itself perched on a secret company structure in Nevada. If Interpol comes looking they must go through difficult, slow, and costly court procedures, in country after country, and face the “flee clauses” that mean the asset automatically hops elsewhere at the first sign of investigation.
The trust arrangement that the Vesteys set up in December 1921, signed in the Paris offices of the British lawyers Hall & Stirling, was fairly simple compared to the great offshore embroideries that are common today. Yet even so, it took Britain’s Inland Revenue eight years to know it even existed.
In the meantime, while the Vesteys’ secret Paris trust ticked over quietly, a new scandal erupted.
In June 1922, seven years after leaving the country to escape British wartime taxes, it emerged that William Vestey had bought himself a title, becoming Baron Vestey