THE SILENCE OF THE SCAMS

 

 

The offshore financial services business is flourishing and huge sums of money are being funnelled into investments by bankers, lawyers, accountants and other professionals on behalf of their clients. Opportunities appear to abound, but investors embarking for the first time on a voyage of discovery into offshore waters should move cautiously.

 

Recently, one of the most effective tools in luring investors has been the Internet and there is no question that browsing the Web can be addictive. The problem is that webs are also used by spiders who, in this instance, are the silver-tongued con-men with a smooth patter who convince the investor to part with his money with the eagerness of a convert at a revivalist meeting. The amount of information available on the Internet about offshore financial services and products is staggering, but if you don’t separate the wheat from the chaff you could become a fly at a spiders convention. Some of the promises and assurances are reminiscent of Will Rogers who said, when commenting about a politician, "It’s not what he doesn’t know that bothers me. It’s all the things he knows for sure that just ain’t so!"

 

Pyramids and the Devil

 

There are some fundamentals which should serve as beacons when an individual is walking through this electronic maze of apparent opportunities. Given that you are not opening an account with an internationally-recognised reputable financial institution and are entering the secondary market, it becomes important to draw back the curtain of words that tell you what the advertiser can do for you and discover the bona fides of those who will be actually doing it. Are they experienced? Are they qualified? Suddenly, as offshore financial services reach a wider domestic market in the first and third worlds more and more practitioners of various disciplines are wrongly professing to be highly knowledgeable in particular areas, hoping to play catch-up as they go along; this is all very well, but not if it’s at your expense. One or two years offshore experience or perhaps several business trips to an offshore centre do not an expert make.

Besides the personnel, the pedigree of the company is an important factor and a company which has been operating for a respectable period of time can be reassuring. Look also at who the company’s bankers and (more importantly) auditors are; the company should have no objection to providing references from either or both sources. If a company is not audited, then there is no independent monitoring of its activities which is the ideal environment for pyramid schemes, a plague which has spread to the Internet. These are the very schemes which have recently caused havoc in Central Europe. Fresh funds are the life blood of these scams and when the supply is cut off - often due to a combination of unanticipated events - will the pyramid invert and the false financial edifice come tumbling down.

 

Variations of the pyramid scheme are occurring constantly and it would be well to remember that for every highly-publicised swindle, with newspaper pictures of despondent investors, there are countless other frauds where the impact is just as devastating for the victims except that their faces have not appeared in a newspaper. In a case of the Devil looking after his own, many investors will have compelling reasons to keep low-key about their investment and, in consequence, they neither seek legal redress nor report the fraud to the authorities but just suffer in silence.

 

Pirates and Pawns

 

The banking authorities in 140 countries recently reached agreement with the Basle Banking Committee to be more co-operative in exchanging information with each other. The offshore regulators, known collectively as the Offshore Group of Banking Supervisors, include the Bahamas, Bermuda, the Cayman Islands, Hong Kong, Panama and Singapore and, not surprisingly, with such geographical diversity, the drafting of the agreement was at times tortuous. In addition to exchanging information, Basle and the regulators agreed a checklist to be applied in determining that an offshore bank is being properly supervised. I welcome this news because in a previous article I advocated the need for more co-operation between the authorities as opposed to more regulation.

 

Some of the points brought out during the drafting stage of the agreement clearly underlined the need for banking guidelines to be issued by some of the governments. There is no shortage of excellent common sense precedents and I would urge those jurisdictions without guidelines to introduce this essential banking tool as soon as possible. In any event, there could be turf wars on the horizon because the International Monetary Fund is contemplating issuing arbitrary banking guidelines, according to a recently-published study by a committee representing industrial countries, emerging markets and international institutions. The committee also remarked on the lack of cohesion in tackling the problem of developing standards for financial stability in the emerging markets. No surprises there.

 

During its discussions with the Basle Banking Committee the Offshore Group of Banking Supervisors voiced its concern at revealing the identity of offshore depositors or investors to their counterparts in the industrialised nations because of the possibility that, rather than tracking down illicit funds, the information could be a useful source for detecting tax evaders. Their thoughts - and those of bankers - should be directed more towards the new threat from Moscow - Mr. John Moscow, that is, the Senior Assistant District Attorney of Manhattan in New York. Mr. Moscow’s modern-day Manhattan Project is targeted at money laundering and those bankers who deliberately or innocently participate in the process. The envisaged punitive measures against non-United States institutions include the seizure of assets and the extradition of personnel to the United States to face criminal charges. Mr. Moscow says that the United States is justified in employing draconian extra-territorial powers against foreign banks and institutions and he intends to get down to - literally - the wire in his campaign. The Manhattan District Attorney’s Office claims jurisdiction to prosecute foreign bankers, whether pirates or pawns, on the basis that U.S. dollars wire-transferred from, say, London to Singapore would most likely have passed through the New York clearing bank system and this momentary pause via a series of electronic blips would subject the transaction to the jurisdiction of the American courts.

 

Wistful Conclusions

 

You have to give credit to Mr. Moscow for his zeal and you should apply it yourself when choosing your offshore practitioner. I can only repeat what I said in my last article that experience is all that counts, more so than the practitioner’s location. Besides, perceptions of jurisdictions can be misleading. Mr. Moscow might be surprised to find that it is usually easier to open a bank account in Miami than it is in Panama and some other mature offshore centres. Several of today’s prime offshore centres experienced biased propaganda in their infancy and, amusingly, a few of them have not entirely shaken off the stigma which has brought on a surge of righteousness of the kind usually reserved for converted whores. There is no ideal offshore jurisdiction and there never will be. The best of offshore centres will never be immune from the worst of publicity if the fates conspire against it and what really counts is the presence of professional competence. In my two previous articles I spoke of the concept of The Order of the Hammer (TOOTH), illustrating my point with the experienced engineer who put aside his sophisticated tools and applied a hammer-blow to get a machine to work. He sent his bill and charged not for his effort but for his skill in knowing precisely where to aim the blow. If you wish to avoid TOOTHache, seek out professional advice; even if it costs money, the price of not getting it can be much higher if you’re steered towards the wrong investment.

 

One scam that I’m sure will not have investors suffering in silence is Bre-X Minerals. The company is no longer using the Internet to display photos of Indonesia accompanied by optimistic analysts’ reports in what has been claimed to be the world’s biggest ever mining hoax. Sadly, we can all fall foul of the masterly fraud and the best we can hope for is to avoid the webs of lesser spiders and to ponder that if God made man, who can you trust?

 

 

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