by George C. J. Moore
Editor's Note: The following is taken from remarks presented at a seminar featuring the Turks & Caicos Islands sponsored by the International Law Section. Held December 10, 1996 in Miami, the seminar was also addressed by the Turks & Caicos Islands' Governor, Chief Minister, Financial Services Commission Superintendent, TCInvest CEO, Bar Association President, and three T&C attorney. A recent Chair of the International Law Section, Mr. Moore is a member of the bar of Florida, England and seven countries and territories in the Caribbean.
Several years ago, at the end of a short presentation on an international business topic, I was asked a final question which I never forgot. 'What is the question you are most often asked,' I was asked. After a pause, I knew immediately - the wrong question. And that is somewhat the point I wish to make today.
Typically, the scenario for me, in relation to my Caribbean area practice, is that a telephone call comes in from another attorney, sometimes in the United States, sometimes elsewhere, who asks something like: 'How long does it take to form a Cayman Island corporation?' Or, 'Does a Bahamian trust need to be executed in the Bahamas?' Or 'How do I find an attorney in Nevis or some other far off place, like Nauru? Or something like, 'What would a jury award for an arm and a leg in Antigua?' or somewhere else in the Caribbean. This last question, at least, is easy; there are no juries on personal injury cases in the Commonwealth Caribbean.
Usually, I don't just answer that it takes so and so long to form a corporation in Cayman, and neither do I leap right into the inquirer's assumption in the Bahamas is the way to go - since perhaps once again I have been asked the wrong first question.
Instead, I try to determine the inquirer's level of commitment to see if they really are committed to Cayman as a place to incorporate, or to Bahamas, as a place for their trust. Usually, the decision maker is the inquiring attorney, and not the client, and normally attorneys are interested to hear some reasoning. Usually they have no commitment to any particular jurisdiction and only appear to have already made up their mind, in which case I give them my own analysis, my theory of what is the best or most appropriate offshore jurisdiction.
Obviously, there is no cookie cutter perfect solution for every person or situation; indeed, every matter must be analyzed in relation to its unique elements, including most particularly, who it is and what are they trying to accomplish. There is no one-for -all recipe. Selection factors are, ultimately, highly personal. On the other hand, there are some obvious questions which have clear cut answers.
The first of course is whether an offshore jurisdiction has any utility in the first place. At least half of all inquiries are premised upon unfounded theories or outdated possibilities which have been legislated away by tax or other reform .Cut those.
For the remainder, however, picture grandmother's sifter with as many as 45 different offshore jurisdictions tossed in, jostling and straining to make it through to the short list. This would include such obscure and far flung places as Seychelles, Vanuatu and Nauru, the world's smallest independent country.
First Test - Time Zone Test
Be practical. Ask yourself, first, is it important that your client, or you be able to get in touch with, and stay in touch with your advisors in your selected offshore jurisdiction - or maybe even travel there for business if necessary, or send things there, or receive things from there - or simply telephone there? Are you an A type person or a B type person? An early riser, late riser or perhaps an insomniac who does not mind rising in the middle of the night to dial and perhaps radial to the backside of the world to reach to your offshore representative?
Or perhaps you do not mind having to conclude your conferencing with your offshore fiduciaries by mid-morning, your time here, as they are pulling down the blinds over there, as all across Europe, which is six hours later.
True, e-mail melts the clock and permits one to communicate anytime and, yes, maybe that would be appropriate from time to time,, but seldom when immediate, private two way communication is needed; there is no substitute for the immediacy of that.
And what about visiting there? Are you and your client amenable to jet lag or super jet lag, when it comes to travelling to some of the more exotic and far-away places? And what about sending and receiving things, hard copies and originals? Would a week's transit make any difference? Unfortunately business is usually in a hurry and all too often the pressure cooker winds up on your desk.
Most clients do want to stay in touch, or at least be able to get in touch quickly. So, first of all be practical; apply the time zone test and, straight off the bat, strike off more than half of the world's offshore jurisdictions.
This still leaves a lot of survivors, though, right here in the Western Hemisphere. Within the bounds of Bermuda to the north, Costa Rica and Belize to the west, Aruba to the Southwest and Barbados to the Southeast, we still have at least 12 potential offshore jurisdictions, including Anguilla, Antigua, Bahamas, BVI, Cayman, Montserrat, Nevis, St Vincent and Turks & Caicos.
Next Test - Legal System
How up to date are you and your client on civil law - not the civil law you studied in law school, as opposed to criminal law, but civil law deriving from Napoleon? Are you willing to venture your client's fate to the current day manifestations of the Napoleonic Code, as in Aruba, the Netherlands Antilles, and Costa Rica? Perhaps you are an Anglophile, more comfortable with, if not insistent upon, the familiarity, reliability and predictability of English common law.
Especially when it comes to trusts, civil law and trusts don't mix, not reliably and predictably. And that's what it's all about: planning with maximum certainty. No civil law jurisdictions for me, thank you. Whack. There go another batch of potential offshore jurisdictions, including Panama, which in my view has long been lame.
Next Test - Tax Treaties
Unless you need a FSC (foreign sales corporation), who wants a tax treaty? Life is complicated enough already, without official exchange of information. The U.S.-Bermuda treaty took effect in 1989, under the CBI. Barbados also signed a treaty with the U.S., and has other treaties as well. Keep it simple. Strike Bermuda and Barbados. Besides, Bermuda is very expensive.
Next Test - No Tax Plus Guarantees of No Tax
Not low tax, only zero tax - and government assurance against the same for 20 years. Again, cut Barbados and others.
Next Test - Sophisticated Products And Legislation
This is obviously critical. The jurisdiction must offer a full range of modern vehicles and devices, such as IBCs, LLCs, LPs, captives, and perhaps also hybrids and other variants. At the same time, there should be none of the traditional constraints and obstacles, such as ultra vires, perpetuities, and forced heirship, as in many civil law countries. Instead, ease of incorporation, absence of nationality requirements, transfer in and out potential, relative freedom regarding names, language and designated currency are important. Freedom, also, to travel there or not, as the client might wish.
Here among the survivors thus far we have to cut Nevis and Anguilla. Nevis, now wrenching itself away from St. Kitts, is still in birthing, and Anguilla is too small and still immature. Au revoir, at least for now.
Next Test - Government Stability And Attitude
In addition to sophisticated, flexible vehicles and devices,, the offshore climate must be right. Administration must be efficient, reasonable and most of all stable. Integrity and accessibility are also critical. The better the Government attitude, the more genuine and sustained will be the welcome. The previous remarks of the Turks & Caicos Islands Governor, Chief Minister, Superintendent of the Financial Services Commission, CEO of TCInvest, and the President of the T&C Bar Association all make clear that Turks & Caicos intends to augment its commitment to stable, efficient and reputable offshore activity. Turks & Caicos are a dependent territory, under the British Government in London.
Next Test - Reputation
Perhaps, however, the government attitude has been too welcoming. Perhaps the invitational aroma is overly sweet, or has gone stale. Twenty-five years ago St. Vincent developed a bad smell when unwitting investors and business persons relied upon empty guarantees of totally unregulated shell banks or otherwise fell prey to St. Vincent bank mischief. The island became notorious and still has a black eye.
Montserrat fell into the same trap, with 350 brass plate banks until 1990, when there was a big stomp out. Here, too, the smell lingers and, furthermore, the island's administrations and survival is now unfortunately plagued with a steaming volcano which is about to erupt at any time.
Now Antigua is having a mud bath. A big slap came six weeks ago when U.S. News & World Report reported that the number of offshore banks in Antigua increased by 75% in 1995 and described Antigua as the "money-laundering capital of the Caribbean...Lax banking laws in places like Antigua mean that victims have little recourse."
Cut St. Vincent, Montserrat, and Antigua. End of Round One. Who is left? Only Cayman, Bahamas, BVI, and Turks & Caicos. Begin Round Two. What about costs, currency and confidentiality?
Next Test - Costs
For some clients, this is where the rubber hits the road. For others, cost is no concern. But more and more, that's history. Costs do count and the attorney who share this concern will be all the more appreciated by the client.
How expensive or cost effective is the jurisdiction? Here we are talking about not only incorporation costs and annual maintenance costs, but also professional fees, including what people sometimes forget, up front fees for subsequent opinions, subsequent transactions, and eventually extrication, e.g. via sale, probate, liquidation, etc. What, though, about incorporation costs?
The Cayman Government charges a hefty ten times what Turks and Caicos does to incorporate an offshore company and the Government annual fee is double that of T &C.
Cayman regards itself as the best and charges accordingly. Furthermore, with a Cayman company, you must have at least one director's meeting each year in Cayman, in accordance with section 193 of the Companies Ordinance. Not every company owner/director wants or finds it convenient to go to Cayman every year. They can of course get people to meet on their behalf but this is by no mean free or cheap.
Don't look for bargains in the Bahamas either. Their IBC government incorporation fee is a trifling $100 but don't let that fool you. It's more like a loss leader. Bahamas lawyers have the tightest monopoly in the Caribbean and learned long ago how to charge fees.
Still reasonable, however, are BVI and Turks & Caicos.
What, then, about currency?
In Cayman, it's the Cayman dollar, more valuable than the U.S. dollar, and worth $1.10. This may not seem important since U.S. dollars are often denoted and are always acceptable. It's only when it comes to accounting and record-keeping and keeping track of expenses that you are sometimes not sure whose dollars you are talking about.
In the Bahamas, it's still the Bahamanian dollar, on a par with the U.S. dollar but, unlike in Cayman, the Bahamas still has Exchange Control which can sometimes be maddening, even if foreign clients normally deal only in U.S. dollars and are exempt from exchange control. (Elsewhere in the Commonwealth Caribbean, it's the EC dollar, pegged at 37 U.S. cents. This applies, also somewhat maddeningly, in Anguilla, Antigua, Montserrat and Nevis).
Next test - Confidentiality
Both Cayman and Turks & Caicos have a Confidentiality Ordinance. Neither the Bahamas not BVI have any such ordinance. Furthermore, Cayman, Bahamas and BVI are all high profile jurisdictions. Mere mention of their name, for some, raises a red flag. Some people, therefore, prefer a low profile.
High vs Low Profile
One of the modern world's original and most conspicuous tax havens, the Bahamas are still intensely busy, hosting thousands of companies and hundreds of banks. Very high profile.
Cayman's meteoric rise came in the 1970s, resulting in more banks per capita than any other jurisdiction in the world. Thousands of companies also. Very high profile.
British Virgin Islands are the newcomer. Floundering after termination of the tax treaty with the U.S., the BVI flourished on the heels of the eruption in Panama with a flood of company transfers and transplants, and now hosts more offshore companies than anywhere else in the Caribbean. BVI is the nouveau high profile jurisdiction - with nearly 200,000 offshore companies.
Still low profile? Turks & Caicos
Another aspect of high versus low profile is name availability. The chances of being able to incorporate with a name that is highly desired, or transfer in with a company name that has already been selected, at the time of initial incorporation, is obviously much greater in a jurisdiction where masses of companies have not previously been formed. Compare to BVI's nearly 200,000 companies, T&C has incorporated some 17,000 companies. A further important aspect of high/low profile is the prospect of receiving and sometimes competing for professional attention.
Conclusion
Winnowing through all of the above criteria is but one jurisdiction: Turks & Caicos. Add the significant additional factor of immediate accessibility and the conclusion becomes even more decisive. Twice daily, American Airlines connects Miami and Turks & Caicos, which, after Bahamas, Cuba and Cayman, is the closest foreign territory to U.S. soil. BVI by contrast lies in an earlier time zone, is nearly twice the distance away and requires a change of planes to get there - in Puerto Rico, St Thomas, or Antigua.
Furthermore, going to Turks & Caicos is fun. Club Med has its premier facility in the Caribbean on Providenciales and Sandals has just acquired a prime resort on Grace Bay, the island's best known beach. Conde Nast Traveller travel magazine describes T & C as having the best beaches in the world, and Town & Country several years ago named Turks & Caicos as the discovery of the year.
What is more, Turks & Caicos welcomes outside establishment of local business. Prime beachfront property is available from the government for development on long term low cost lease and, unlike in other jurisdictions, there are no local capital or ownership requirements for engaging in most local businesses or restrictions on foreign purchase or ownership of land. The islands have ample infrastructure to support substantial local business, Florida is the islands' principal exporter and trading partner, outside expertise and investment is welcome - there are some 38 different nationalities resident on Providenciales alone - and an approved capital investment recently lowered to a minimum of only $50,000, can lead to permanent residence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
ARTICLE
21 March 1997