Treasure Islands - Nicholas Shaxson [29]
But even when the British tax authorities found the Paris trust, through patient detective work, they still could not get the Vesteys to pay tax on it. For secrecy is not the only subterfuge that trusts provide.
People are sometimes puzzled by one particular thing about trusts. If you must give the asset away into a trust in order to hide the asset and dodge your tax bill, is that not an oversize price to pay?
The answer is not straightforward. In part, this is a cultural question. Wealthy classes have grown to feel comfortable separating themselves from their money and leaving it to be managed by trusted strangers. Their education prepares them to recognize those who will respect their claims and whom they can therefore count on to do the right thing by them.
But there is another part to the answer, which offers further insight into the sneaky world of offshore. If you want to evade taxes or hide money through a trust, the trick is to make it seem as if you have given your asset away, while in reality you retain control of it. You can tell the tax authorities, or the police, that you really don’t own the asset anymore—and only your trust lawyer need know that you are still really in control.18 The preamble to the Paris trust deed hints at exactly that pretence. “In consideration of the natural love and affection of the settlors [the Vesteys] for the beneficiaries,” it began, “and for divers other good causes and considerations.” The money, it was saying, had really been given away to their dear beneficiaries, their wives and children.19
But what the Vesteys actually did was this. First, they leased most of their overseas empire to Union Cold Storage Ltd., a company based in Britain. In any normal arrangement, Union would have simply paid rent to the Vestey brothers. But instead Union paid the rent to two trusted lawyers and a company director in Paris. These trustees were then given very wide powers of investment, to be carried out under the direction of certain “authorised persons.” And who were those persons? Why, the Vestey brothers! So the trustees, under the Vesteys’ direction, lent large sums to another company in Britain, which the Vesteys also controlled, and which they used as their own personal piggy bank.20 They had seemed to have given away their money while retaining real control.
And here comes a point about tax havens. Reputable jurisdictions have put in place laws to make it very hard for you to play this trust subterfuge. But secrecy jurisdictions have done the opposite, specializing in providing laws to help you perfect the deceit. Many jurisdictions, for example, allows things called revocable trusts—trusts that can be revoked so that the money is returned to the original owner. If you can do that, then you have not really separated yourself from the asset. Until it is revoked, though, it looks as though you have passed the asset on, and the tax authorities cannot have it. A Jersey sham trust provides a different subterfuge, letting you replace trustees with more pliable ones later, and changing their instructions at will. Or a trust might have a “trust protector” who has influence over the trustees, who acts discreetly on behalf of the person who pretended to give the money away. A Cayman Islands “Star Trust” lets you, the original