On Monday last week I flew out to Monaco. This was my second trip in two months. I had client matters to attend to but was also kindly invited to the tennis. On my previous trip I had sensed a change in mood and wanted to know whether the residents in Monaco were still feeling safe and if not, why not.
The tennis was, I confess, a great treat. My hosts entertained me to lunch by the pool and then full of good food and champagne, I and another guest, David, settled down in our box to enjoy Pablo Carreno Busta against Fabio Fognini.
Pablo won, but Fabio was the clear favourite; born 30 minutes’ drive from the Principality. The crowd applauded, cheered and stamped their feet in support. Fabio is clearly talented, but spoilt his game with bouts of angry emotion when he threw his racket across the court. The crowd voiced their frustration with boos and hisses.
Thank you Pierre and Alistair for a great day.
But once outside the tennis, I wanted to know whether the mood really had changed in Monaco and why. There is no income tax, so why should any change bother them? True, Monaco used to be known as – ‘a sunny place for shady people’, but the Principality has worked hard to attract only residents with a clean Anti Money Laundering records who are tax compliant, so that could not be at the heart of the mood change.
Everyone I asked said the same thing, ‘Just two years ago, Monaco, was a bubble, we felt safe; no taxes to pay, higher police per person than any other country and an exceptionally good way of life. But this has now changed’. But, what was making them feel less comfortable?
Monaco, like every other country in the world, other than the US, is under pressure to comply with the OECD initiatives which include the automatic exchange of information. If Monaco does not comply, it will be black listed by other countries. But if there is no tax in Monaco, why should this exchange bother them?
The problem, it would appear, is that most residents do not have all their assets in Monaco; many have homes and financial assets in countries where they do not trust the government.
Roy lives in Monaco in which he has a bank account to fund the lifestyle of himself and his young family. However, he still has family and business interests in the country of his birth; Indonesia. His other business interests are in Russia with its headquarters in Cyprus, and he holds other financial assets through a BVI company in the Bahamas. He does not want too much information getting to the governments of Russia or Indonesia.
He has trusts in both the Bahamas and Cyprus, but Monaco is a civil law country, it does not recognise trusts. If a hostile government wanted to set aside a trust to raise more revenue the fear is that they could do so in Monaco!
Roy and I met on this visit. We took an afternoon to go through his concerns which centred on privacy, protection of his assets and the exchange of information. I also went through with him the real danger for many wealthy individuals with assets in numerous jurisdictions of a government running an argument on the doctrine of sham, (which I covered last week) and starting a claim in a civil law country.
After a very short conversation, it was clear that Roy’s trusts and assets were vulnerable on many fronts, his structure needed to be overhauled and made much more robust. I outlined what could be done and how to do it. Roy is lucky he has recognised the new dangers and is prepared to do something about it, I fear that others may not be so wise.
For many, Monaco has felt safe for decades but now the CRS has upset this delicate balance. The cosy world in which they have been living has unexpectedly and suddenly shrunk. Those for whom privacy is a concern now need to review their ownership of assets outside Monaco.
The tsunami of disclosure is coming, for those who are prepared, it will not harm them, but there are others who may not be so lucky.
There are solutions, but being out of sight and out of mind, to evade tax is not one of them.
Caroline Garnham is CEO of Garnham Family Office Services – The Trust Specialists
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