HIDDEN TREUHAND: NO LAW, NO CRIME

by Shelley Stark

   ‘Treuhand’ is a German language term that refers to a ‘legal trust’. Conversely, a hidden ‘Treuhand’ is completely non-transparent, only somewhat legal, and operates covertly. Hidden ‘Treuhand’ is used to hide the beneficial ownership and control of any asset, located anywhere in the world, by owning the asset through a corporate structure. When the corporate structure is created with a hidden ‘Treuhand’, a lawyer/trustee is the listed shareholder. The real shareholder’s identity remains anonymous in all business dealings. According to Prof. Dr. Sol Picciotto, emeritus professor at Lancaster University and a senior advisor to the Tax Justice Network, there is a close link between tax avoidance dealings in offshore tax havens and the speculation that has fuelled the current financial crisis. He states: “large multinationals are as much financial as business entities, they have freedom to devise complex financial structures, and financial institutions such as banks, even more so: in recent surveys by the US Government Accountability Office and the Tax Justice network, the largest user of tax havens in every country was a bank”.

   Hidden Treuhand is made and in use especially in Austria, Liechtenstein, Luxemburg, Switzerland, and Germany, in part because they all share the same basis of law. These European countries are set apart from the rest of the world in the way they foster the availability and especially the protection of hidden ‘Treuhand’.

   Lawyers are often called upon to act as a ‘trustee’ in a hidden ‘Treuhand’. There is no law regulating hidden ‘Treuhand’. There exists only law specifying that the lawyer cannot divulge any secrets pertaining to the client. The hidden ‘Treuhand’ is not so much protected by law as it protected by lawyers. If questioned, the lawyer will simply evoke attorney-client privilege. At that point, the law protects the lawyer.

   This is how it works: a notary public notarizes the names of all shareholders and registers them in the public corporate register. Anybody wishing not to be evident in this public registry engages a lawyer to represent his shares or ownership. Anonymity is insured because only the lawyer’s name will be notarized and visible in the corporate registry. The true beneficiary’s name is not notarized or publically evidenced in any form. The private contract, known as a hidden ‘Treuhand’, documents the arrangement between the lawyer and client, and only they are privy to its contents.

   There is no regulation of the Treuhand industry and yet, the Treuhand contract enjoys great protection by law. The Austrian Lawyers’ Chamber has taken great steps to alleviate any fear of embezzlement by a lawyer through a Treuhand contract registration process. The registration is optional, and was constructed to ensure beneficiaries that the asset held in a Treuhand contract is accessible only to the parties involved in the Treuhand contract, while providing banks assurances that the responsible parties are accountable.

   It is easily understood why guidelines for administrating hidden beneficiaries and assets would be desirable. The hidden ‘Treuhand’ operates in obscurity: clients do not outwardly appear to own their assets and the practice is not regulated by law. It is easy to imagine that the secretiveness afforded this covert world might eventually stumble onto problems such as embezzlement of a beneficiary’s property by a lawyer. The secretive aspects of hidden ‘Treuhand’ require too much trust from clients, leading to the need for lawyers themselves to regulate that which the law does not and cannot regulate.

   In the early 1990s, Wild West cavalier Treuhand activities gave way to multiple cases of embezzlement and threatened to destroy the institution of Treuhand in Austria. The client’s anonymity was used against the client to embezzle property much to the chagrin of banks financially involved. The activities of some lawyers provoked outrage from banks to the extent these institutions were threatening the Austrian legal community. Banks caught in the fray, forced the legal community to take action to ensure both clients and lending institutions that embezzlement by lawyers would cease to occur.

   The answer to how this dilemma was solved is detailed in a legal brief written in 1996 by a Viennese lawyer, and the current Vice President of the Lawyers’ Chamber, Dr. Gerhard Horak. If lawyers are going to create hidden ‘Treuhands’, keep them as flexible as possible, and yet not actually have the legal authorities involved, then lawyers themselves would have to find a way to regulate their colleagues.

   Dr. Horak writes: “accumulated abuse and embezzlement by lawyers…caused great consternation among private investors and financial lending institutions, provoking hesitation to commission lawyers with trust activities. This development and ensuing lack of trust especially affected younger colleagues in the legal profession, who were unable to convince clients in the Treuhand business sector that they were worthy of the necessary trust for Treuhand transactions.”

   As problems mounted and the actions of lawyers came under further scrutiny, the desire for a more effective means of securing Treuhand activities increased, forcing a seminar to be held in Salzburg in 1995 to avert further damage. Dr. Horak claims: “Earlier attempts (only tentative) by the Chamber of Lawyers to intervene by regulating Treuhand was strictly declined at the time by colleagues under the dogma and allusion of freedom within the legal profession to make contracts as they like.”

   The response from the Austrian legal community was the creation of the ‘Treuhand handbook’—an agreed upon set of guidelines drawn up by the Lawyers’ Chamber and a registration system.

   Their goal was to offer clients the highest possible security and efficient control regarding Treuhand transactions while maintaining complete freedom to arrange contracts and operate as flexible as possible. “Within the scope of these maxims, we pushed to take action although we didn’t like to (not in our interests) and subsequently developed the legal trust handbook for guidance,” said Dr. Horak. Clearly, the legal profession in Austria did not like the idea of guidelines and felt it was not in their interest. The actions taken by the Vienna Bar Association assured clients that complete anonymity and security could be achieved simultaneously.

   The Vienna Bar Association purchased a special computer system to be supervised only by qualified lawyers for registering Treuhand contracts and beneficiaries. It was considered by many in the legal community to be an unfortunate necessity that any control of trusteeships by lawyers would be necessary. Dr. Horak noted: “The Lawyers’ Chamber knows that the legal trusteeship handbook is a tightly fitting corset.  The wearing of this corset is much easier for all of us if the noted ‘confidentiality crisis’ could be ended.”

   There are several very interesting points involved in the registration of a Treuhand. Firstly, participation by either the lawyer or the client is optional. Secondly, if the client opts for registration, the client can be assured of maintaining control without being present because the lawyer has to keep the trusteeship files in a way that all orders that have to be carried out are evident in the file.

   The third point is that even an “anonymous Treuhand contract,” or hidden ‘Treuhand’, can be registered. Dr. Horak’s brief states: “In case of controlling anonymous trusteeships, the control is restricted to the inspection of the trusteeship index, where the trusteeship is only evident by a sequential registered number.”

   Lastly, this scandal tells us something else about Treuhand activities: clients could not even turn to tax records as a means of getting their property back. In essence, Dr. Horak’s brief proves that hidden ‘Treuhand’ facilitates tax evasion and that the Austrian legal community is painfully aware of this fact. The Austrian Legal Chamber acknowledges the existence of anonymous or hidden ‘Treuhand’ and provides special conditions and security for the client, whereby the client’s beneficial ownership of an asset can be registered under a number much like an anonymous Swiss bank account.

   Banking secrecy only protects money from public knowledge, but a registered hidden ‘Treuhand’ offers the beneficial owner security and secrecy for the assets that are capable of producing equally secret income.

   Treuhand contracts are secretive and function without the slightest transparency, and yet they are fully protected by law. A leading Austrian bank confirmed that all contractual Trusteeships (with some exceptions) must be wound up over the Lawyer’s Treuhand Book as of July 1, 2000. The ‘some exceptions’ include registration of contracted hidden ‘Treuhands’ such as “anonymous Treuhands.” 

   The law does not regulate hidden ‘Treuhand’, so lawyers formed a regulating system themselves. The reason for creating the guidelines and voluntary regulations was to keep lawfully binding regulations from being imposed on the industry and yet maintain the freedom to make contracts that reflect the will of the parties without losing the cooperation of the banks. The lack of lawfully binding regulation offers a Wild West land of opportunity for those that can conceive of a business plan that would be made more advantageous when the identity of the true benefactors is completely concealed from public knowledge. The legal community acknowledges that in effect, a true legal framework is nonexistent, yet simultaneously specifies a framework based on trust law.

   There are some obvious perks in the Treuhand relationship to be realized by both the lawyers and their clients. Perks range from tax avoidance to outright tax evasion for both because neither one need declare income that cannot be traced. In this way, these lawyers/quasi trustees have created a thriving cottage industry for themselves. Moreover, it is an industry for which the lawyers themselves are the first line of defense. These lawyers have created secret legal structures despite efforts from the international community to work within and enforce the rule of law as practiced in democratic societies.

   The phenomenon of the hidden ‘Treuhand’, when combined with banking secrecy and globalization, is no longer confined only to Austria, Switzerland, Liechtenstein, and Luxemburg. Due to globalization, these countries are able to impact economies outside their borders. For example, Germany is unable to keep taxable income from leaving Germany and becoming bunkered in Liechtenstein, Luxemburg, Switzerland, or Austria.

   High net worth individuals and corporations from all over the world come to these jurisdictions not just to evade taxes, but also to create a hidden ‘Treuhand’ that hides their beneficial ownership of an asset in another country.

   The key role played by the hidden Treuhand is to prevent transparency regarding economic activities, not just beneficial ownership. These economic activities need not be confined to Europe; in fact, via the corporation, these activities have a global scope. As a result, non-transparent economic activities are encouraged. As a result of law and the lack of law, there is no means to disclose the secrets a Treuhand is meant to hide. In effect, the hidden ‘Treuhand’ is a black box. 

Shelley Stark is the author of Hidden Treuhand: How Corporations and Individuals Hide Assets and Money, published by Universal-Publishers.  Available direct from Universal -Publishers or through Amazon and Barnes and Noble.  

To learn more about Hidden Treuhand and how it is impacting the world economy and your financial security, please put this in your browser: http://www.universal-publishers.com/book.php?method=ISBN&book=1599429292

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