I’ve been thinking about one of the charades in Hansmeier’s deposition, and although I know little about the corporate law (especially international), I risked to do some research and share my findings.

On page 39 of the transcript we read:

Q. So in my experience most trusts name at least one beneficial owner, but I believe you testified earlier today that the trust that owns AF Holdings has no beneficial owners; is that correct?

A. The trust that owns AF Holdings is an undefined beneficiary trust. I would suggest that your experience is not complete when it comes to trusts.

Q. Perhaps you can enlighten me. What is a undefined beneficiary trust? Allow me to be more specific. Can you explain to me what is the undefined beneficiary trust that owns AF Holdings?

Hansmeier evaded answering this question. And this is not an easy question, and Morgan Pietz did not deserve an arrogant remark that his “experience is not complete when it comes to trusts.” Information about trusts without beneficiaries is sparse on the Internet, yet we managed to find one document written by a Nevis’ law firm Liburd and Dash. This essay explains what this beast — a trust without beneficiaries — is about.

Nevis

Such trusts are also called “Purpose trusts” because despite the lack of defined beneficiaries, the trust’s purpose must be clearly defined. This is common around the world if the purpose is charitable, but non-charitable trusts with no defined beneficiaries are widely considered non-kosher even in notorious tax havens, but are perfectly legal in Nevis.

A Purpose Trust established under the laws of Nevis can be a valuable tool in the fields of Estate Administration, Tax Planning and Commercial Transactions. It is a vehicle which ensures that its assets have no beneficial ownership and can achieve a level of anonymity, by removing beneficial ownership and insulating the Source of Funds. However it should have a specific defined purpose and should periodically distribute funds to fulfill that goal. Periodic distributions would prevent any allegation that the Settlor or Source of Funds had no donative intent, and that the Trust is one which was not established for genuine reasons, but is a “sham”. This would allow a Purpose Trust established under the laws of Nevis to enjoy international recognition.

The document is not an easy read for us laymen and laywomen. Yet it may draw the attention of IRS. If anyone from this organization has stumbled upon this post and finds this document interesting (especially in light of Hansmeier’s statements quoted below), do not hesitate to contact me: I’ll connect you with people who possess more information on the subject.

Q. How about tax records. Has AF Holdings ever filed a tax return?

A. I don’t not believe they have filed a tax return in Nevis. I believe there’s an exception that if you’re not recognizing revenue, to filing a tax return, so I don’t not believe they have filed a tax return in Nevis.

Q. Has AF Holdings ever filed a tax return in the United States?

A. I’d have to think about that. I’m not aware of any tax returns that AF Holdings has filed in the United States.

 

Interesting links

Recent mega-leak of offshore business records:

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Comments
  1. good find, where good is the new great. I will add this to the reading queue behind the Patel Motion and the March 11 transcript!

    Coincidence that this law firm’s website is liveyourdash.com? Or something like that…

  2. AnonymousDoe says:

    The march 11th transcript was so good. I couldn’t put it down. I barreled through all 120 pages with only one pee break ;)

    I’m SO glad the transcript is out. FCT might want to cross-link to the popehat article, as it has a TON of new reading material.

    (Here is the transcript: http://www.popehat.com/wp-content/uploads/2013/04/PatelExhibitF.pdf )
    (Here is the popehat article that has so much good juicy reading: http://www.popehat.com/2013/04/08/prenda-law-let-the-other-shoes-hit-the-floor/ )

  3. DB says:

    Wow, I had no idea that such trusts existed.

    I read the document, and still don’t quite get it.

    As best I can tell, the author knows that this type of trust is dodgy. They had to write this in a way that describes what it is, but without acknowledging what the trust really is. It’s either a tax scam, or is used to hide the true ownership and control of an entity. It’s not permitted in most of the world, but Nevis allows it because, well, that’s what tax havens do.

    It appears that this type of trust actually does have an ‘Ultimate beneficiary’ which isn’t directly considered a beneficiary. Instead the money is expected to be distributed for a defined Purpose, and the Ultimate Beneficiary is only specified as a backup if the Purpose can’t be fulfilled.

    My guess is that the ‘Purpose’ here is to fund future lawsuits. The real purpose is to immediately move the money out of the U.S. to avoid paying tax, and to keep it from any future legal proceedings.

    Very clever.

    Prenda is judgement proof.
    They have no assets. They aren’t a beneficiary of the trust. They control no funds. They don’t have an offshore bank. They can be sued, but there is nothing there, no funds to draw from.

    But once they form a new firm, they will be magically paid whatever they want from the trust. All growing nearly tax free, invisible to and untouchable by any court.

    This makes the endgame clear to me. There is no reason for the Prenda gang to turn on each other, and every reason to stick together and keep quiet.

    Just like in Florida, nothing substantial will happen. There, Steele had to sign a document saying he will not claim to be part of the Florida bar. Cut hair without a license in Florida, you’ll very likely have to spend time in court and get the full $500 per haircut fine. Practice law without being on the bar, you are scolded and have to sign a document saying you won’t do it again. Oh, and you get to keep the money.

    In this case, I’ll be Gibbs gets a warning or a six month suspension, while Prenda gets a judgement against it for legal fees which ultimately won’t be collectible.

    • Raul says:

      There was a period of time when Prenda’s corporate certificate of good standing had lapsed. It may be that any liabilities incurred during that window of time would be the responsibility of the principals as the corporate shield did not exist.

  4. doggedt says:

    excellent research; thanks for sharing !

  5. Karma says:

    Aisha Sargeant can be anagramed as “A Against Share”. Coincidence!?!

  6. DieTrollDie says:

    Wow! What a bunch of legal mumbo jumbo. Just need to set up some shell corporations in the US and use the non-charities purpose trust to hold everything in Nevis.

    The problem the Prenda crew will have is that there are going to be US financial records showing payment to Prenda. If the IRS does take an interest (hopefully), the rules on claiming revenue will be examined carefully. The fact that John Steele/Prenda claimed to have made a couple million in the Forbes interview will be interesting to investigate.

    DTD :)

  7. DieTrollDie says:

    The last part does sum it up.

    A Purpose Trust established under the laws of Nevis can be a valuable tool in the fields of Est ate Administration, Tax Planning and Commercial Transactions. It is a vehicle which ensures that its assets have no beneficial ownership and can achieve a level of anonymity, by removing beneficial ownership and insulating the Source of Funds. However it should have a specific defined purpose and should periodically distribute funds to fulfill that goal. Periodic distributions would prevent any allegation that the Settlor or Source of Funds had no donative intent, and that the Trust is one which was not established for genuine reasons, but is a “sham”. This would allow a Purpose Trust
    established under the laws of Nevis to enjoy international recognition.

    It would be very interesting to see if funds were disbursed, to whom, and for what stated purpose.

    DTD :)

  8. DB says:

    Pretty much every section of the document reads like that paragraph. Phrases such as “level of anonymity”, “insulating the Source of Funds”, and “tax planning”. Along with hints such as ‘here is how to word it so it’s quite as obvious that the trust is a “sham”‘.

    Basically, the people setting it up can later claim not to have control, the people putting in the money can’t find out where it’s going, and the people receiving the money aren’t technically the beneficiaries.

    I expect such mystery entities are quite lucrative for Nevis. They don’t even need to be taxed. They keep locals employed in highly paid jobs, and well-kept secret trusts often are misplaced when sometimes dies, ending up split between the trustee and government.

  9. AnonymousDoe says:

    It also says the trust can be nullified if the purpose is illegal or immoral.

    I have no idea if what they are doing is illegal by St. Kitts/Nevis rules, but I’d doubt it. But it sure is immoral beyond any shadow of a doubt.

  10. DB says:

    Illegal or immoral?

    My impression is that Nevis is a offshore tax haven. They very well understand their business.

    Just like a guy running a by-the-hour hotel in the red light district, they know exactly what is going on, and turn a blind eye to it. They aren’t going to turn anyone in and ruin their reputation.

    • AnonymousDoe says:

      I did not infer that anyone would be “turned in.” Please don’t put words in my mouth. What I’m inferring is that they can invalidate the trust in St. Kitts and Nevis on the grounds that it’s immoral.

      From there it would be easy to figure out which scum sucker bobs to the surface of the pond to collect their money.

      The document says:
      The Ordinance codifies the requirement that a Non-Charitable Purpose Trust must not violate public policy. The law provides that such a Trust must be created for an aim which is;
      “specific, reasonable and capable of fulfillment”, but, “…is not immoral [or] unlawful…”

      Page 10.

      • doecumb says:

        Prenda is less than pocket change compared to the sums of money passing through St. Kitts/Nevis. Just estimating, the sum involved is easily 10,000 times more than Prenda’s lifetime earnings.

        The SK/Nevis financial groups would have a whole economy to lose if money movers get an impression that the veil of money secrecy could be penetrated. If the Prenda crew stirs up a hornet’s nest in Nevis, they’ll face the fury of huge financial asset holders.

        Off shoring would be consistent with evasion & misrepresentation by the top of the Prenda food chain.

        As DTD points out, it’s easy to estimate the sums that Prenda has pulled in-say 30% of the total Does times $3,000. Financial reporting very different from that estimate may put Prenda under the glare of the IRS and other agencies.

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