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Before he was arrested for money laundering, tax evasion and organized crime, Romanian offshore consultant Laszlo Gyorgy Kiss explained to an undercover reporter from the Organized Crime and Corruption Reporting Project (OCCRP) the art of hiding ownership of a company. He dedicated a chapter to the topic in his book, "United States, Tax Heaven - Uncle Sam Will Fight Your Taxes!" (http://www.delaware.ro).
The approach Kiss details is used by almost all registration agents who advertise anonymous companies. While the United States and other international agencies push for more laws, techniques like this guarantee that reluctant or slow-moving legislators will continue to be outsmarted.
Offshore registration firms first hide ownership by registering companies in locations that guarantee owners anonymity. Among these places are Delaware, the Seychelles Islands and the British Virgin Islands. Many of these locations have been under pressure to record the real or beneficial owners, either by registering them with the state or keeping their own private records. In this way, while not technically public, ownership records exist that law enforcement authorities might get access to.
But this is not anonymous enough for some organized crime groups.
Most of the company registration firms will provide another service - proxies who stand in for the real owner. The proxies allow their names to be used in place of that of the real owners. They are often employees or friends of the registration company although they might be anyone interested in a fee. All official paperwork is done in their name. However, they often know little or nothing about the firm.
Proxies serve as a second layer of protection. If law enforcement or journalists do overcome the legal barriers set up by offshore havens to finding the official names of owners of companies, they still must find out who is behind the proxy.. To provide a further level of protection, the real owners themselves might approach the registry agents through proxies - trusted family, friends, lawyers or other registration agents like Kiss. Often companies from other registration agents are used as the owners or proxies. In this way, complex networks difficult to untangle get set up.
Kiss writes that Delaware is one of the most impenetrable offshores. Here, he says, "designated agents," his term for proxies, can be "hired" as both directors and shareholders allowing the true owners to legitimately claim no connection to a firm.
Kiss explains in his book that the shareholder proxies receive shares in the company in their name and they appear in all the paperwork. However, they sign an undated document that transfers their shares to the real owners.
"Simply by adding the date, (the real owners) can become the company shareholder at any time. Of course, the document can be post dated. The contract of sale between the designated shareholder and the real beneficiary of the company is an internal document, not accessible to a third party," the book says.
The real director of the company is also hidden behind a designated proxy he controls, Kiss details.
"First, he can request a general power of attorney from the designated director, which would give him full power. Thus, Mr X will act as the company director, without being mentioned as such in the offshore company documents. Who could say that Mr X is the director of the company? Nobody! Someone else is the director as the documents of the company clearly indicate," according to the book.
Kiss says there"s an even better method if you can pay for it. The proxy director is simply paid to do what they are told to do. Then:
"an undated, blank resignation letter represents a guarantee against possible abuses of the designated director to the detriment of ... the real director of the company.The director can be dismissed and all decisions made after the date written on the resignation letter are rendered null. They are null and void because the director acted beyond his competencies," the book advises.
Kiss says anonymity is needed to "limit any losses that might result from separations, bankruptcy, etc." Once a Delaware company owns a local company, it allows the real owner deniability.
"Any public statement linking Mr X (the real owner) to the Romanian company or his businesses will be contradicted by the Romanian National Trade Register Office... If, however, one insists and claims that there is a link between Mr X and the Delaware company, no evidence can be produced. Moreover, Mr X can go to court if he considers that he has been slandered."
Kiss is currently getting an opportunity to test his own system. Last month after he was arrested, prosecutors alleged that he was behind a number of offshore companies that were paid to do non-existent consulting services. Kiss denied the claim and asked the court to release him on the basis that he had no role in the offshores. The court rejected that idea and he currently sits in prison awaiting formal charges.
In his book, the offshore consultant talks further about how he practices what he preaches. Kiss boasts that during his own divorce, he cheated both Romanian justice and his former wife by hiding his assets behind a Delaware company.
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