Recently, we discussed how Mossack Fonseca used bearer shares structure to conceal the clients' identity. We commented that this is outdated for now as it will not allow you to open a bank account in most of the case. Today, we will discuss the other structure that was used by Mossack Fonseca, the Panama Foundation structure.
Many corporate owners or to those who are familiar with Offshore IBC, they may not understand what is a Trust, a Foundation or a LLC.
Let's us revisit some of the key features of these entities.
An LLC (Limited Liability Company), there is no shareholder, it only has members which work like a shareholder. There is no corporate tax but the tax flow through to the members' level. This means that the earning will pass on to the members and the members will pay their tax at the personal level.
A Trust will consist of a settlor, a trustee and the beneficiaries. For those who like to protect their assets, they will use this structure. As long as the settlor transfers the asset into the Trust more than 2 years before its bankruptcy, the assets are protected under the Trust. There are many cases whereby the settlor is one of the beneficiaries and the Trust may own a few offshore companies for the beneficiaries to manage.
A Foundation structure is something that we have not discuss before. In a Foundation, you have a founder who will put in the assets for the foundation. There will be a few council members and there will be a protector. The foundation council which is responsible for carrying out the purposes of the foundation. The protector position is optional. A protector may be appointed by the founder to oversight managerial actions of the Foundation Council.
So how does a Panamanian Foundation is related to the activities of Mossack Fonseca? Let's say now, you look for a law firm. This law firm has a foundation. You want to your assets like cash and companies away from your nasty creditors. What is stopping you from putting your assets into the law firm's foundation and the law firm incorporates an offshore company to hold your cash? Nothing. So if this offshore company is using nominee director service and the nominee director signs a power of attorney to you, do you effectively control the company? Yes, you are. If you transfer your offshore company into the foundation and it engages a nominee director to run your offshore company, it is possible? Yes, it is possible. Will be better if the nominee director signs you a power of attorney to manage this company. Effectively, this company and cash no longer belong to you but you are the decision maker over these assets. You own nothing from now but you control everything from everywhere. Perfect isn't it?