Last week, I met with Jane Gilbert, a friend of mine for breakfast. She is an expert in kidnap and extortion insurance and we met to discuss the kidnap of Bernie Ecclestone’s mother.
Whilst kidnapping for ransom continues to be an everyday occurrence in many parts of the world, the crime continues to develop. Today, for example, a virtual kidnap. Virtual kidnapping is going global; it is now endemic through Latin America and Mexico and has spread to the Middle East.
The significance of 2017, is that this is when the Common Reporting Standard will be implemented world-wide. The advantage of Virtual Kidnap is that it is a perceived kidnap; it is not real. A Virtual Kidnap avoids the need for more than one person, weapons, a safe house and the risk that the victim will be able to identify them. Some criminals try their luck (with success) just with a mobile phone and a telephone directory.
Mandy is the daughter of a wealthy entrepreneur Peter who is in the food importing business set up by Peter’s Polish father Nicolas. As Mandy is having coffee in Dubai where she lives, she is jostled and her mobile phone which is in her hand is stolen. She is annoyed, but not alarmed, all her details are backed up.
An hour later, Peter receives an anonymous call, ‘Hello, we are holding Mandy your daughter, she is wearing a blue shirt, white trousers and a Rolex watch. Transfer £1million to us and she will not be harmed’
Immediately, Peter calls Mandy on her phone, but he gets no reply he tries again and again, no reply. He panics, so he pays the money.
A few days later Mandy contacts her father Peter to say that she now has a new contact number and he finds out she has not been kidnapped, but merely had her phone snatched.
Now let’s fast forward to 2017. Peter is a beneficiary of a trust, the Sunshine Trust set up, by his late father, Nicolas in Jersey twenty years ago. He is the Protector of the trust, but has never received any payments from it. The trust has £30million in a bank account in ABC Private Bank in Jersey. Jersey like most other countries now demands every financial entity in the jurisdiction to report all accounts of foreigners with the amount, the distributions and to whom and the identity of everyone who has significant influence over the account under the Common Reporting Standard. ABC Private Bank therefore has to disclose to the Jersey authorities the deposit of £30 million it holds on behalf of the Sunshine Trust, of which Nicolas is the Settlor and Peter is the Protector.
Peter receives a call in 2017, ‘Hello, we are holding Mandy your daughter. Transfer the sum of £30million which you hold at ABC Private Bank on behalf of the Sunshine Trust and she will not be harmed’.
How did the criminals get this information – both Jersey and the UK have in place rigorous processes to ensure the privacy of this information? There are however, numerous examples where rogue employees whether in government or in a bank simply steal the information and sell it. We have also seen seemingly impenetrable systems hacked and information made public.
As Protector of the Sunshine Trust Peter can indeed call the trustees and ask them to transfer to him the £30million to pay the ransom, but that is not all. The payment to Peter is a distribution from the Sunshine Trust, on which he is liable to pay tax. The Jersey authorities are obliged to report to the Jersey authorities which will automatically exchange this information to HMRC and Peter will need to pay tax on this money - but Peter does not now have the money to pay HMRC!
There are plenty of things Peter could have done, had he known the risks. He can insure against such a risk, but he can also minimise the risk through ‘Privacy Planning’. He can change trustees in favour of those resident in a more suitable jurisdiction, move the administration of the trust from Jersey and the account from ABC Private Bank.
Tax evasion and aggressive avoidance are not to be tolerated anywhere in the world, and any professional which is complicit with a taxpayer in concealing funds from the taxman, will find themselves paying fines or worse. However, there are people, like Peter who have no intention of evading or aggressively avoiding paying their taxes, but will not compromise the safety of their family and will do what is necessary to protect them.
If you wish to book an appointment with Caroline or one of her team for privacy planning, the review of an offshore structure, estate planning, family governance, dispute resolution matrimonial concerns or any of the subjects discussed in this paper contact Svetlana on firstname.lastname@example.org or call 0203 740 7423.