Review of Offshore Jurisdictions (Part 2)

the_asset_protection_news

Volume V, Number 2 – July/August 1996

© Donlevy-Rosen & Rosen, P.A.

REVIEW OF OFFSHORE JURISDICTIONS:

Jurisdiction 2: Anguilla

INTRODUCTION. With this issue we continue our review of selected offshore jurisdictions. As indicated by the above subtitle, in this issue we will review Anguilla.

anguillaBACKGROUND.Anguilla, with an area of only 35 square miles, is the smallest and most northerly of the Leeward Islands lying 70 miles to the west of St. Kitts and 5 miles to the north of St. Maarten. Its territory includes the tiny island of Sombrero, 30 miles north of Anguilla. There is easy air access between Anguilla and the U.S., and English is the official language.

Anguilla is one of five British Dependent Territories in the Caribbean. Although it is essentially self-governing, its legislature being the democratically elected House of Assembly, its Constitution (effective since April 1, 1982) gives the British-appointed Governor certain fundamental reserve powers. All legislation must be assented to by the Governor as the Queen’s representative.

Anguilla, an English common law jurisdiction, has its judicial system administered by the Eastern Caribbean Supreme Court, with an appeal process culminating with the Privy Council, in London. It enjoys political and economic stability, has modern communications facilities, and has available local professional services, including legal, banking and auditing. Like most Caribbean jurisdictions, it is a party to the Mutual Legal Assistance Treaty with the United States, which requires it to provide information regarding certain criminal activities, including drug trafficking, fraud and money laundering to the U.S. authorities. Anguilla imposes no taxes, and has no foreign exchange restrictions.

IMPORTANT LEGISLATION & RAMIFICATIONS. Anguilla joined the ever growing realm of asset protection jurisdictions when it adopted, effective January 1, 1995, the Trusts Ordinance, 1994, and the Fraudulent Dispositions Ordinance, 1994, which together offer some remediation of the erosion of the protective ability of domestic trusts for a settlor-beneficiary (See APN, Volume V, No. 1). The law of Anguilla specifically allows the settlor to create and to be a beneficiary of his or her spendthrift trust. However, the troublesome doctrine developed in some common law jurisdictions (including the U.S.) by which a trust may be declared invalid if the settlor retains too many controls over the trust has not been statutorily renounced in Anguilla, as it has been in the Cook Islands. Therefore, caution is indicated in establishing an Anguillan trust where the settlor will retain or be able to exercise any powers over the trust or trustee.

The Fraudulent Dispositions Ordinance repealed the Statute of Elizabeth, which rendered void ab initio any transfer found to be fraudulent as to present or future creditors. Under the new ordinance only a creditor whose obligation existed at the time of the transfer and who was known to the settlor, and who was actually prejudiced by the transfer may complain as to that transfer. Such creditor must prove that the transfer was made at an undervalue (that is, for no consideration, or a consideration less than market value) and with the intent to defeat the particular obligation owed to that creditor. In a past issue of APN (Vol. IV, No. 4) we revisited the fraudulent transfer laws generally in effect in the United States. In many instances in the U.S. and under English common law, if a transfer is found to be fraudulent as to any creditor, the entire transfer may be undone. If a creditor is (somehow) successful in this endeavor in Anguilla, under the Fraudulent Dispositions Ordinance, the entire transfer is not undone (as may occur in the U.S.), but only so much of the transfer as is necessary to satisfy that particular creditor, plus court-allowed costs. Each creditor must separately go through the same process! The new ordinance does not differ from U.S. fraudulent transfer or conveyance laws, however, to the extent that a court may take into account a variety of factors in determining whether a transferor possessed the requisite intent to cause his transfer to be a fraudulent transfer. Anguilla again stops short of taking as pro-settlor a position as some other asset protection jurisdictions.

Anguillan counsel advises us that this less than ideal pro-settlor legislation was designed to deter less than desirable settlors. For example, although Anguilla’s three year statute of limitations for the commencement of fraudulent transfer claims is more attractive than jurisdictions such as the Cayman Islands (a 6 year statute of limitations), it is much less aggressive than a jurisdiction such as Belize which grants immediate immunity. Proponents of the use of Anguilla believe that selecting a less aggressive jurisdiction may be of assistance in defending against allegations of an intent to defraud. In considering the statute of limitations, one must remember that Anguilla would not be the appropriate venue to bring a tort or contract case against a settlor, and that ordinarily, the only type of case brought against an APT will be a fraudulent transfer case, or one which alleges that the trust is invalid as a result of retained powers. Because our legal process moves so slowly, by the time the creditor can start his case against the trust in Anguilla, it may be too late.

OTHER IMPORTANT LEGISLATION. Under certain circumstances, it may be important for an APT to be able to “move” to or from its original situs jurisdiction. Anguilla legislation fully recognizes and implements this requirement by, among other things, allowing a trust to redomicile to Anguilla, and then deeming it to be an Anguillan trust. The statute does not specifically permit a retroactive application of Anguilla’s protective trust laws, and since there is as yet no case law on point, whether protection can apply retroactively is unclear.

Some settlors may find Anguillan laws to be a sufficiently formidable obstacle to a creditor’s attack on a properly structured and implemented trust, as Anguillan courts will not give effect to the judgment of a court of another country which is inconsistent with Anguillan law in respect of marriage or its termination, succession rights, the claims of creditors in an insolvency, or the imposition of any foreign tax or duty. In some jurisdictions, a settlor’s bankruptcy, even years after the establishment of a trust, will result in the trust being invalidated. Anguilla’s law specifically states that a settlor’s bankruptcy will not affect the validity of his APT unless a fraudulent transfer was involved (in which case those rules will apply).

Finally, Anguilla prides itself on its stringent regard for confidentiality. The Confidential Relationships Ordinance, 1981, makes it an offense punishable by fines and/or imprisonment to divulge confidential information. Also, although trusts are not required to be registered, if they are, the records related thereto are sealed, and permission of a trustee is required before verification of the trust’s existence will be given to a third party. Of course, the Court’s have the power to retrieve information concerning the trust, and, if a party does bring an action which is sustained, the Court may order costs and expenses be reimbursed.

CONCLUSION. For those settlors who are confident of their financial solvency, lack of present creditors, and desirous of appearing to act in good faith by permitting their trusts to be open to attack for a longer period than a Belize trust would be, Anguilla may be an appropriate jurisdiction for the establishment of an APT.

Leave a Reply

Your email address will not be published. Required fields are marked *