In the recent past, bearer shares especially allowed for anonymous corporate ownership.  A corporation that issued bearer shares had no central registry of the bearer share ownership.  As a glossary from the The Financial Action Task Force explains, “[b]earer shares refers to negotiable instruments that accord ownership in a legal person to the person who possesses the bearer share certificate”.  Via its 24th Recommendation “Transparency and beneficial ownership of legal persons” available here, the Financial Action Task Force also warns that bearer shares can be used to launder money.

I too have seen how bearer shares had likely been used to conceal marital assets and evade U.S. taxes.  In that particular case, (the facts of which have been changed herein for privacy reasons), the divorcing husband and his business partners accumulated $18 million in suspected undeclared revenue in the U.S.  The husband and his partners then secretly formed a shell corporation in the Republic of Panama.  They jointly owned and controlled this corporation through the issuance of bearer shares.

To prevent the interdiction of their bearer shares by domestic authorities, the husband and his partners retained a lawyer in Panama to hold the bearer shares in a trust.  As their trustee, the Panamanian lawyer deposited the bearer shares into a stock custody account at a bank in Panama.  As the following diagram demonstrates, the husband and his partners finally deposited their $18 million in suspected undeclared revenue, in a Cayman Island bank account in the name of their Panamanian shell company:

As described above, the husband and his partners hid their $18 million from the United States by employing multiple jurisdictions including Panama and the Cayman Islands.  They concealed their beneficial ownership of the $18 million through their use of protective layers consisting of: bearer shares; a nominee shell company established in Panama; a trust formed by a foreign gatekeeper (i.e. the Panamanian lawyer);  and an offshore bank account in the Cayman Islands.

Such layering is characteristic of money laundering and sometimes ends in the kind of tax fraud case filed by the U.S. Department of Justice against Mr. Walter Anderson, who is discussed  at my post “A $365 Million Dollar Tax Fraud“.  As that post mentioned, Mr. Anderson used bearer share stock certificates and shell companies to conceal the undeclared revenue he had parked offshore.

 

Copyright 2008-2015 Fred L. Abrams