Gibraltar Money Laundering

Gibraltar, a British naval base situated on the 2.64 sq. mile rock (one twentieth of the size of the Walt Disney World Resort in Orlando) in the recent years has become a major international offshore financial centre, much more important than the Gibraltan authorities would like to admit.
Known in the past century mainly for its unique Gibraltar Apes, the only free-roaming tailless monkeys in Europe, in the past 20 years Gibraltar has been steadily parlaying itself into a major offshore tax haven. The British military, which traditionally dominated the economy of Gibraltar, providing over 60% of its economic activity in 1984, is no longer a major economic factor of the Rock. In the last twenty years British naval dockyard contribution to Gibraltar economy diminished to only 5%.
Today, Gibraltar has an extensive service-based economy, dominated by offshore financial services.
With its population of approximately 29,000, Gibraltar boasts 19 banks, 17 insurance companies, over 30,000 registered companies (exceeding Gibraltar population) and an undetermined number of unregistered entities, such as Gibraltar so-called "foundations" and "trusts." According to some estimates of international AML (anti money laundering) organizations this number runs into hundreds of thousands. In addition many bookmakers and online gambling operators have relocated to Gibraltar from more regulated jurisdictions.
Gibraltar is "jurisdiction of concern" as defined by the United States Department of State and is viewed with caution by the international AML community. International Monetary Fund (IMF) has determined that Gibraltar "likely to be involved - - wittingly or not" in the money laundering activity. IMF emphasized that "most money-laundering cases involving Gibraltar arise out of investigations into international fraud schemes."
IMF’s has determined that Gibraltar is prone to money laundering activity "at the placement stage, in connection with drug trafficking, migrant smuggling, and organized crime in southern Spain". and is "likely to be involved—wittingly or not—in the layering and integration of proceeds of crime." IMF also pointed out that "most money-laundering cases involving Gibraltar arise out of investigations into international fraud schemes."
Gibraltar, has strong ties to Channel Islands, Israel, Cyprus and other financial centres. Located at the southern tip of Spain, near the north coast of Africa, Gibraltar is proximate to known drug trafficking and human smuggling routes. It is also a retail banking centre for northern European expatriates with property in southern Spain. Southern Spain has experienced a recent influx of criminal elements from Eastern Europe who are known to engage in a wide range of proceeds generating crimes. These factors all contribute to money laundering and terrorist financing risks in Gibraltar.
In the 90s, following the collapse of the Soviet Union, Gibraltar had become the principal financial sanctuary for the Russian Organized Crime (ROC) and trusted treasurer of billions of dollars illegally exported from Russia by corrupt officials. Gibraltar APTs became the main vehicles of both funneling the illicit proceeds out of Russia and holding the secret assets of Russian racketeers. Stephen Curtis, a British lawyer, who died in a suspicious helicopter crash in 2004, had spirited hundreds of millions of dollars of Russian oil profits from Yukos and Menatep via offshore accounts in Gibraltar, and on to other western countries through complex and impenetrable financial networks of Gibraltar APTs that stretched across the globe.
Since the break-up of the Soviet Union, the Russian mafia has gained ground in Spain, exploiting lax property laws and limited police resources to launder millions in property deals through bogus firms in the neighboring Gibraltar.
Gibraltar attracts significant number of sub rosa international financiers and offshore trustees with its laws which accord ability to camouflage identity of the real owners of assets with complex unregulated trust structures. Especially popular are the so-called "asset protection trusts" under Section 42A of the Registry of Dispositions Ordinance. This provision explicitly exempts certain trusts from the Fraudulent Conveyances Act of 1571, which otherwise forms a basic pillar of the common law of trusts.
IMF and other international financial organizations advise that despite certain improvements in the Gibraltar legal AML framework, activities linked to money laundering, corruption and drug trafficking continue.
Gibraltar entities are frequently used as vehicles of abuse of court process and as a device or facade. In English case Trustor AB a key authority on piercing of the veil, the Court pierced the corporate veil of a Gibraltar corporation used by its controlling shareholder as a judgment-proof vehicle to receive monies improperly transferred from another company. The Trustor court emphasized that the shareholder was the "directing mind and will which had no independent business, third-party directors, creditors or shareholders" and had been used improperly as a device or facade for the shareholder's benefit." The Trustor decision was cited in major U.S. cases, such as Neilson vs. Brearly one of a key US authorities on piercing corporate veil, The Nelson court found that a Gibraltar corporation was used to "abuse of the process of two courts" and misuse of the corporate form" and to "mislead and injure" citing the Trustor.)
Spain, Gibraltar’s northern neighbor, recently requested Organization for Cooperation and Economic Development (OCDE) to revise Gibraltar’s status as a tax haven and for it to be placed on a ‘black list’ for its lack of cooperation in disclosing information regarding tax evasion and money laundering. The Tax Office of Spain advised that Gibraltar continues to be an ‘opaque, inaccessible and impenetrable’ place and information they had received from the Gibraltan authorities had been ‘insufficient and of very little use’ and that their inquiries had come up "against a brick wall." The Spanish authorities believe that other tax havens like Jersey, some parts of the Caribbean and Andorra have provided more information to help combat money laundering.
Although Gibraltar agreed to accommodating its legislation to EU norms and to adopting the recommendations made by the International Financial Action Group (GAFI), Juan Hernández Viuelas, a prominent tax haven expert, said that Gibraltar has been breaking agreements since 1997. Hernandez states that ‘Gibraltar has become a very active financial centre with a very special status within the EU" that is governed by an oligarchy, that is to say, a very small group of powerful people.
Ostensibly, some legal reforms will take effect beginning with 2010. Gibraltar until now has been considered as a more cooperative tax haven compared to Liechtenstein, which is still considered as non cooperative.
The IMF 2007 Country Report on Gibraltar, noted:
"The principal AML risk to Gibraltar is lodged in its professional sector, which is likely to be involved—wittingly or not—in the layering and integration of proceeds of crime. There is also some risk to Gibraltar at the placement stage, in connection with drug trafficking, migrant smuggling, and organized crime in southern Spain."
Most money-laundering cases involving Gibraltar arise out of investigations into international fraud schemes. Traditional organized crime and drug related cases, though important, comprise a minority of criminal investigations that touch Gibraltar’s financial center. The professional sector of lawyers and accountants often introduces their clients to the financial sector institutions in Gibraltar.
Although the Gibraltar has a legal framework for AML, such as the Drug Trafficking Offenses Ordinance (DTOO) and the Criminal Justice Ordinance (CJO), the local judicial practice makes ML conviction nearly impossible. For example, in order to establish that the property involved in the ML offense is the proceeds of crime, Gibraltan judicial practice interprets the law as requiring proof of a specific criminal act necessarily corresponding to a predicate offense under either the DTOO or the CJO and requires prosecution to prove to a criminal standard that the particular property being related to drug trafficking, the exact juris of the funds. Since actual illicit transactions involving Gibraltar shell entities rarely (if ever) take place in Gibraltar itself, tying the specific property to specific criminal activity is nearly impossible - - rendering Gibraltar ML laws ineffective if not obsolete. In fact, even though the Gibraltar’s attorney general’s office does not keep statistics on the number of prosecutions, convictions or charges for money laundering it is known that there was not a single successful ML prosecution in Gibraltar ever. In the vast majority of cases, charges had been dropped either because of difficulties associated with proving the predicates committed abroad or —in one significant case—as a result of legal challenges to the process.
After "unfortunate local rulings in two significant cases in Gibraltar, however, the attorney general has concluded that he cannot go forward with domestic money-laundering prosecutions without clear and convincing proof (although not necessarily a conviction) of the underlying offense." IMF and other global financial organizations view that as "a serious weakness" in Gibraltar’s Combating the Financing of Terrorism (CFT) and AML regime.
In addition, the United Kingdom has not extended to Gibraltar the International Convention for the Suppression of the Financing of Terrorism (ICSFT) - - another important loophole in Gibraltar AML framework. The IMF recommended that ICSFT Convention be "swiftly extended to Gibraltar."
In sum, the powers to prosecute ML presently are available virtually only in drug-related money-laundering cases and do not extend to massive use of Gibraltar sham trusts and shell entities in fraudulent schemes outside of Gibraltar.
In most offshore jurisdictions the effect of the fraudulent conveyancing laws regulating asset protection trusts depends largely on the particular statutory definition of the term "intent to defraud". In order to commence an action directly in such a jurisdiction, a creditor must satisfy a reasonably wide standard based on the statutory definition of the term intent to defraud in respect to the settlor's state of mind at the time when the trust was constituted, The creditor would be able to initiate proceedings directly in the offshore jurisdiction if he could show that, in accordance with the statutory definition of the term, the settlor intended to defraud at the point when the trust was constituted.
In comparison, the only direct action which can be commenced in the Gibraltar courts in relation to asset protection trusts is a bankruptcy proceeding, as the legislative provisions allowing for the establishment of asset protection trusts lie in the Bankruptcy Ordinance where the standard of intent to defraud is much narrower and harder for the creditor to satisfy. In order to commence bankruptcy proceedings in Gibraltar. it must be proved that the settlor is resident or domiciled in Gibraltar, or that an act of bankruptcy was committed in Gibraltar. But APTs, including Valmore, specifically provide that no beneficiary or settlor may be resident of Gibraltar. As such, it would be almost impossible to initiate these proceedings in Gibraltar, as it would be impossible to prove that the settlor is either resident or domiciled in Gibraltar. Equally. it would be very hard to demonstrate that an act of bankruptcy had been committed in Gibraltar.
In sum, the powers to prosecute ML offences presently are available virtually only in drug-related money-laundering cases and do not extend to massive use of Gibraltar sham trusts and shell entities in fraudulent schemes outside of Gibraltar.
This in turn plays a pivotal role in civil cases tried in Gibraltar because a party has no fear of admitting to engaging in ML activity, including placement, layering, and integration of criminal proceeds so long as such are not products of drug related offenses. Gibraltar trusts permit non-Gibraltan fraudsters to utilize these instruments in furtherance of sophisticated financial and asset frauds outside of Gibraltar. IMF urged Gibraltar to "abolish asset protection trusts”.
Combination of the above factors continues to provide fertile ground for international frauds and money laundering schemes. and Gibraltar, despite some improvements is still viewed with caution by the AML community.
--------------------------------------------------------------------------------

Main Menu

See Also

Main Menu