by Brian Mahany
Last spring I had the opportunity to represent a client with pending criminal charges in three different Arab emirates. While 7 emirates are loosely joined into the United Arab Emirates, the individual countries are very different. Most Americans are immediately familiar with Dubai and Abu Dhabi but cannot name the others. Although all are quite modern in terms of infrastructure, the laws and transparency of the banking system varies widely. With that knowledge I was not surprised when I received an invitation through LinkedIn this morning to create an RAK “Offshore International Business Company” and bank account. RAK stands for the emirate of Ras al-Khaimah.
Readers of this blog know that International Business Companies or IBC’s are often used by those intending to evade taxes. There is nothing inherently wrong with IBC’s, although using one to evade tax obligations is obviously illegal.
Why IBC’s? There are several characteristics of IBCs that lend themselves to fraud. First, they are often associated with so-called secrecy jurisdictions that have a poor performance in honoring tax exchange agreements. IBC’s are offered in a number of countries including Antigua, the Bahamas, Panama, Gibraltar, Labuan and the Seychelles. Ras al-Khaimah has apparently joined that list.
Most IBC’s provide for bearer shares meaning there are no official records as to who owns the company. Their charter statutes usually also provide for no local taxation provided the IBC does not do business in the host company. In other words, the host government provides a local charter in return for a few hunderd dollars in annual fees. No questions asked and no need to disclose who owns the company as long as you keep your business outside their borders.
Enter Ras al-Khaimah, a small arab emirate that borders Oman. With a population of less than 300,000 and land mass of 650 square miles, RAK is not large by any standard. It’s government is an absolute monarchy meaning the ruling Sheikh can pretty much do whatever he wishes.
According to the advertisement I received this morning, for a “small” fee of several thousand British pounds, one receives “all the usual offshore Company [sic] benefits. No taxation, no VAT and no requirement to file accounts with the added benefit that RAK Companies offer total discretion and confidentiality.”
If you aren’t convinced, the ad goes on to say, ” RAK Offshore has not signed, and has no intention of signing any exchange of information agreements with any country. RAK Offshore is Non-Compliant [sic] with OECD requirements and therefore provides the very best in security and asset protection.”
Many offshore promoters attempt to legitimize their product by wrapping themselves in the cloak of asset protection. This particular provider, however, pretty much brags that its product is not compliant with international disclosure treaties of which the U.S. is part. There is a legitimate use of offshore structures to avoid frivolous litigation. Many people intentionally or mistakenly believe, however, these vehicles relieve them of their tax reporting obligations. They don’t. Those that buy this particular product to avoid taxes may well be headed to a prison cell if caught.
While the RAK may or may not be part of a tax exchange agreement, there is nothing to prevent the absolute ruler from cooperating with law enforcement officials from the U.S. and other jurisdictions. And whenever funds are transferred there is always a paper trail. Unless one plans on chartering a large boat and sailing around the world with large sums of cash stuffed into suitcases, hiding your money from the taxman isn’t as foolproof as many of these promoters suggest.
N.B Lest anyone not believe my warnings and still think that the RAK Offshore ad is a legitimate tax strategy, the ad concludes with this: “Using a RAK IBC Company … really says something about you abd your business… No other offshore jurisdiction can compare to Dubai.”
Last I checked, Dubai is not part of the RAK!
Brian Mahany is an attorney with the Milwaukee, Wisconsin based law firm of Mahany & Ertl. He and his firm concentrate in international tax reporting requirements for U.S. taxpayers, defense of those charged with criminal tax evasion and helping victims of fraud get back their hard earned money. Brian can be contacted by email at Comments and questions welcome!