OFFSHORE ACCOUNTS for the MASSES

From the archive, originally posted by: [ spectre ]

http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-offshore_13bus.ART0.State.Edition1.1f2f04a.html
Senate report blasts Dallas firm for offshore services for the masses
by Brendan Case / August 13, 2006

“For $2,500, a Dallas-based financial services company offers customers the privileges of offshore transactions that were once reserved for the super rich. A corporation in Belize, a trust in the Bahamas and two offshore accounts, with either banks or brokerages, are all included in Equity Development Group’s Complete Offshore Package No. 1. “Our mission is to make ‘going offshore’ simple, convenient, understandable and affordable,” according to the company’s Web site. “The average person assumes that domestic options are their only options,” company founder Samuel Congdon says elsewhere on the site.

Such efforts to bring the offshore world to the masses, or at least to lesser millionaires, have earned Equity Development a place in a scathing U.S. Senate report on offshore tax havens. The report said the offshore industry fuels widespread tax avoidance worth up to $70 billion to the U.S. Treasury. “Over the last six years, EDG utilized the Internet to provide about 900 mainly American clients, many of relatively modest wealth, with the type of offshore services previously available primarily to high-net-worth individuals,” according to the Senate report, Tax Haven Abuses: The Enablers, the Tools and Secrecy.

Mr. Congdon, 33, and his Dallas lawyer, James Lynn, declined to be interviewed for this article. “Nothing personal,” Mr. Congdon said. “On the advice of counsel, we’re declining interviews.” The Senate report did not accuse Equity Development or Mr. Congdon of specific legal violations but suggested that clients may have used offshore vehicles to break the law. Mr. Congdon “operated in apparent compliance with current law while facilitating potentially illegal activity,” the report said.

Analysts say Equity Development is one of numerous small offshore service providers. Most of the Senate report focused on far bigger players than Mr. Congdon. Investigators detailed the offshore activities of Robert Wood Johnson IV, owner of the New York Jets football team; Haim Saban, a television mogul behind the hit kids’ show Mighty Morphin Power Rangers; and Dallas-based billionaire brothers Sam and Charles Wyly. All of them deny wrongdoing, saying they merely took the advice of high-priced advisers. Mr. Johnson and Mr. Saban told lawmakers they were already in settlement talks with the Internal Revenue Service. The Wyly brothers are under investigation by the Securities and Exchange Commission, a grand jury in Dallas and a grand jury in New York.

Secret, Anonymous
The offshore financial industry consists of an array of banks, corporations, trusts and other entities in countries that typically offer secrecy and anonymity to people doing business there. The business thrives from Bermuda to numerous Caribbean islands to the Isle of Man, a small island in the Irish Sea. Although offshore accounts are legal, many people use them to avoid taxes, launder money or commit financial fraud, the Senate report said. Other offshore clients may have different aims, such as protecting assets from frivolous legal claims or former spouses. One potential client told Mr. Congdon that he wanted to shield his assets from his “greedy former wife and her new husband,” according to an e-mail message cited in the Senate report. Some scoff at the notion that reliable offshore services could be had on the cheap.

“It’s not worth going offshore unless you are wealthy,” said David Marchant, whose newsletter, OffshoreAlert, tracks investment fraud, money laundering and other white-collar crimes. “Unless you’re a millionaire,” he said, “there’s no need to go offshore, because whatever you save on tax, you’re going to spend more than that on advice.” Jay Adkisson, a lawyer with Riser Adkisson LLP in Atlanta, said: “Usually, people who use offshore entities are using it for hide-the-ball tax purposes or they really have no idea about asset protection. Often what you have, for lack of a better term, is a bunch of paranoid doctors who think that by having their money offshore, they’re protected from creditors. But they’re really not.”

One-Stop Shop
Mr. Congdon founded Equity Development in 1999 after earning an economics degree from Hillsdale College in Michigan and an MBA from Southern Methodist University and gaining nine months’ experience in the offshore service industry, the report said. “With few resources, no employees and only nine months prior experience in the industry, Mr. Congdon was able to quickly create and promote an online offshore facilitation business that provided a one-stop shop for persons looking to establish an offshore structure,” the Senate report said.

Equity Development’s offices are located along North Central Expressway, close to SMU’s campus. The lobby of its small suite is conservatively decorated, with wood floors and a globe in a floor stand. Marketing itself primarily on the Internet, Equity Development has served clients everywhere from the United States to Australia to Nigeria, according to its Web site. Mr. Congdon insisted on personally visiting every financial institution he did business with, according to Equity Development’s Web site. The company grossed several hundred thousand dollars in 2003 and 2004, according to the Senate report.

Customers who opt for the $2,500 packages also pay an annual renewal fee of $1,000 to maintain the accounts, according to the Equity Development Web site. Equity Development also sold products off the shelf, from accounts in Curaçao for $300 to corporations in the British Virgin Islands for $1,850, according to the site. Particularly useful for some clients were pre-existing entities called “shelf companies,” ideal for clients wishing to show that their offshore entities have been in business for some time. Belize’s Caribbean Software Development Corp., formed in February, is going for $2,500. The asking price for Paducah LLC, which was formed in 2001 on the Caribbean island of Nevis, is $6,000.

Mr. Congdon also dispensed advice to potential clients looking to move assets offshore. Offshore accounts alone weren’t private enough, because assets remained under a client’s name, Mr. Congdon told clients. He said he didn’t recommend Swiss bank accounts because they “aren’t that secure,” said an e-mail provided to Senate investigators. Instead, Mr. Congdon recommended that clients maintain assets in three to five separate countries in offshore ‘structures’. “The goal is to form a structure that, when put in place, makes a puzzle that is too difficult for any third party [government, litigators, creditors] to put back together,” according to Equity Development’s Web site.

‘Urban Legend’
If Equity Development means to sell offshore accounts as a tax dodge, it doesn’t say that on its Web site. In one e-mail to a potential client, the Senate report said, Mr. Congdon called tax savings an “urban legend.” In another, he told a potential client to consult a tax professional. But older versions of the Web site, which remain in an online archive and were reviewed by Senate investigators, featured what’s called an “offshore calculator.”

Suppose an onshore account and an offshore account both start with $100,000 and manage a yearly rate of return of 15 percent. Twenty years later, the calculator shows, the offshore account would hold nearly $1.64 million, while the onshore account would have $964,629. The difference is due to the 20 percent U.S. capital gains tax, the Senate report says. Nevertheless, the calculator included a disclaimer, saying that offshore account holders may be liable for taxes, depending on their citizenship and where they live. The disclaimer also recommends consulting with a local tax attorney or accountant before opening investment accounts in any jurisdiction.

Still, Mr. Congdon and Equity Development have caught the attention of the IRS. In court filings this year, the agency said it is examining the tax liability of Barringer Financial Partnership LP, which authorities say is another name for Equity Development. A federal judge recently ordered Barringer to give the IRS the names and addresses of its clients. According to a court filing earlier this year by an attorney with the Department of Justice’s tax division, “the IRS has no current plans to investigate Barringer’s clients’ tax liability, but it may.”

E-mail: bcase [at] dallasnews [dot] com

http://www.equitydevelopers.com/
http://www.equitydevelopers.com/who_we_are.asp
http://www.equitydevelopers.com/offshore_101.asp
http://www.equitydevelopers.com/why_go_offshore.asp
http://www.equitydevelopers.com/contact_us.asp

“Founder and President Samuel R. Congdon founded EDG in 1999, building upon his experience working with clients from around the world in international financial services. “Many people from all over the world expressed concern about their financial situations and the risks they were facing,” says Sam. “Others wanted to do business globally but didn’t know the best way to go about it. One thing they all had in common was that they were unaware of the benefits that going offshore had to offer. The average person assumes that domestic options are their only options. I wanted to bring offshore solutions to people to help them protect the assets they’ve spent many years accumulating, restore their financial privacy and to make it easier to do business internationally. It’s gratifying when our clients breathe a sigh of relief, knowing that their finances are safer, private and more secure than they ever have been.”

Since its founding, EDG has extended its international reach to a broad array of countries and enjoys partnerships with some of the world’s leading financial institutions. Throughout the company’s success, Sam has played a hands-on role. “Our clients place their ultimate trust in us when they seek advice about their assets,” says Sam. “In turn, I have to be completely confident in the partners we use when creating an offshore structure for our clients.” Sam insists on personally visiting each and every one of the financial institutions that EDG sends clients to. “Our clients appreciate the fact that I’ve been there, seen the office, met the people and that I’ve shaken their hands and looked them in the eye.” Countries he has traveled to include The Bahamas, Antigua, Nevis and St. Kitts, Dominica, St. Lucia, The Turks and Caicos Islands, The Netherland Antilles, Canada, Mexico, Ireland, England, The Isle of Man, Switzerland, Luxembourg, Austria, Holland, The United Arab Emirates, Panama, Venezuela, Nepal, Thailand and India. This extensive roster of international contacts provides a wealth of knowledge to help EDG better serve clients.”


EDG CASE HISTORY: AN INTERNET-BASED OFFSHORE PROMOTER

http://www.quatloos.com/Tax-Forums/viewtopic.php?t=1005685

“Most U. S. citizens do not venture offshore without assistance. Over the years, a variety of companies, in the United States and abroad, have developed to  promote and facilitate the establishment of offshore financial structures. These companies range in size and sophistication from single-employee, owner-operated businesses to multi-national corporations with hundreds of employees.

In the past, offshore promoters often worked with clients in person, and advertised at trade shows and in speciality publications. With the advent of the internet age, many offshore promoters established a presence online. The internet has lowered the barriers of entry into the offshore business for both promoters and clients. Promoters can reach countless potential clients through search engines and online advertising. Potential clients can access information about the offshore industry instantaneously, anonymously, and in the comfort of their own home. Promoters and their clients need never meet. In addition, online promoters are often well equipped to offer offshore solutions to people of modest wealth, not just the high-net-worth individuals sought out by traditional promoters. This case history focuses on one such internet promoter currently operating in the United States, called Equity Development Group.

Pursuant to a formal request, Sam Congdon, EDG’s founder, president, and sole employee, agreed to be interviewed by the Subcommittee, and to produce relevant documentation. Equity Development Group (“EDG”) is a Dallas, Texas, based company that helped set up offshore trusts, companies, and bank accounts. Nearly all of EDG’s clients learned about EDG online. EDG acted as an intermediary between clients seeking to move their assets offshore, and the offshore institutions that provided the offshore structures. EDG presents a good example of the role that online promoters and facilitators play in helping U.S. citizens conceal assets offshore.

Mr. Congdon established EDG in 1999, after receiving a BA in Economics from Hillsdale College in Michigan, an MBA from Southern Methodist University in Texas, and working for nine months in the offshore service industry, at a company called Universal Corporate Services. Mr. Congdon is EDG’s sole employee. The company maintains a webpage, www.equitydevelopers.com, which serves as its main interface with clients and potential clients. Mr. Congdon told the Subcommittee that EDG has had about 900 clients throughout its existence. The great majority of those clients first contacted EDG through its website. The EDG website states that the company also maintains an office in Nassau, Bahamas, but Mr. Congdon told the Subcommittee that the Nassau office is just a mailbox, and that he, the company’s President and sole employee, has never been to the Nassau office.

The site promotes the establishment of offshore corporations, referred to as “international business corporations” (“IBCs”), as well as offshore trusts, offshore bank and brokerage accounts, and offshore addresses. As of July 2006, EDG offers for purchase online two “complete offshore packages,” Belize, BVI, and Nevis international business corporations, an “Offshore Asset Protection Trust,” bank accounts in Antigua, Curacao, St. Lucia, and Switzerland, brokerage accounts in Panama and the Turks and Caicos, offshore mail forwarding, various trust, bank, and corporate documents, and related services including bearer share certificates, corporate seals, powers of attorney, offshore notary services, changes of corporate name, and certificates of good standing. EDG’s “Offshore Package #1,” which costs $2,500, includes an offshore corporation in Belize, an offshore trust in the Bahamas, two offshore accounts, and offshore mail forwarding for a year. EDG’s “Offshore Package #2” costs $2,850 and differs from the first package in that the offshore corporation is formed in Nevis and promises a quicker set-up. Mr. Congdon told the Subcommittee that he typically set up a corporation with each trust that he established.

EDG also sold shelf companies, which are shell corporations that have been in existence for some period of time before they are purchased. EDG’s website explains, “a small percentage of individuals and corporations that go offshore want to demonstrate that their offshore company has been in existence for several months or years. A Shelf Company is the perfect solution for this scenario.” EDG’s website contains a menu of shelf companies, the oldest dating to January 1, 2001. Shelf companies are available from Belize, The British Virgin Islands, Gibraltar, and Nevis, and range in price from $2,500 to $6,200. In general, EDG charges more for the older shelf companies. Several of the listed shelf companies are advertised as having same day shipping available. Price of purchase includes “an original Certificate of Good Standing, government, registered agent, and nominee director fees.”

Mr. Congdon typically included a mark-up in the price of his products, and received referral fees from some of the offshore institutions he worked with. Documents obtained by the Subcommittee indicate that EDG grossed several hundred thousand dollars in this way in 2003 and 2004.

Mr. Congdon served as a guide and an intermediary for clients as they established financial structures with banks, trust companies, and foreign sovereignties. Many of EDG’s transactions with clients and offshore institutions were conducted online. When a client purchased an offshore package from EDG, Mr. Congdon typically collected all of the relevant application documents from the banks and trust companies involved. Many of these documents were kept in electronic form and emailed between Mr. Congdon, the client, and the offshore institutions. For non-electronic paperwork, such as due diligence material for banks, Mr. Congdon typically collected the material from his clients and then express-mailed it to the banks. Mr. Congdon stated that EDG also kept its clients’ documents on an offshore computer server.

Mr. Congdon also served as a liaison between his clients and the trustees and directors of their trusts and companies. Generally, Mr. Congdon chose the trustees, protectors, and directors for his clients’ companies and trusts, and served as the point of contact between them unless the client chose to serve as the sole director, which was rare. Mr. Congdon said that the majority of his clients
preferred an appointed director. The trustees, protectors, and directors that Mr. Congdon chose were professionals working for offshore trust companies. Mr. Congdon estimated that one percent of his clients chose their own trust protectors.

In the case of shell corporations established in Nevis, Mr. Congdon played a larger role, acting as owner and director during a company’s incorporation process. Mr. Congdon stated that he performed this role for administrative purposes. Under this system, the client’s desired company was incorporated with Mr. Congdon as the sole director, and all shares of the company were issued to him. Then, Mr. Congdon held a board meeting, at which he was the sole participant, and at the board meeting Mr. Congdon resigned as director, resolved to dissolve and destroy the stock certificates issued in his name, issued bearer shares for the company, and appointed the client, or a nominee, as the director of the company. Then Mr. Congdon shipped the bearer shares to his client. Mr. Congdon told the Subcommittee that he never actually owned the companies that he established in this way, but rather, that he held them in trust for his clients .

Mr. Congdon primarily used the internet to advertise and promote EDG’s business of establishing offshore financial structures. Most of EDG’s clients found the firm through the internet, after which Mr. Congdon corresponded with them over email. In addition, on two occasions in the first years of EDG’s operations, Mr. Congdon set up a promotional booth at an industry trade show.

The EDG website was the most important way that Mr. Congdon promoted
his business to potential clients. He told the Subcommittee that he paid Google for a top position on certain searches, in order to direct greater traffic to his site. He also hired web development professionals to improve his website, which further increased his web business. After viewing the website, prospective clients could purchase offshore products online or fill out an online form that sent an email to Mr. Congdon. Mr. Congdon typically answered inquiries promptly and often suggested an offshore structure to meet a potential client’s requirements.

The website lists three primary benefits of taking assets offshore. First, it advertises offshore structures as “a wise and effective means of protection from ruinous lawsuits.” Correspondence between Mr. Congdon and prospective clients confirms that the ability to protect assets from liability for tort, divorce, or other legal claims motivated many of EDG’s clients. In one such email, Mr. Congdon promised that “EDG’s Complete Offshore Package … will protect you from lawsuits and from relatives being able to take your property and funds away.” Mr. Congdon told the Subcommittee that he instructed prospective clients seeking to escape judgments to consult counsel. The website contains no such warning.

Second, the website promotes offshore structures as a way to ensure “financial privacy,” keeping assets away from “credit agencies,” “asset collectors,” and potential plaintiffs. “Unless deliberate steps are taken to insure privacy,” the website explains, “sensitive and confidential information could easily get into the wrong hands. Placing bank and brokerage accounts offshore will keep them off the asset collector’s radar screen.” Emails from Mr. Congdon also indicate that the privacy provided by offshore structures affords protection against identity theft: “So for the purposes of identity theft, offshore accounts are many times safer than US accounts. There’s really not any comparison.”

Finally, the website advertises the “regulatory advantages” of taking assets offshore. Noting that “domestic businesses and operations are often plagued by excessive regulation,” the website explains that “[o]ffshore jurisdictions are intentionally business-friendly and have regulations that are straightforward, simple to understand and inexpensive to comply with.” The website does not explain which regulatory requirements can be avoided by taking assets offshore.

The current version of the EDG website makes no mention of tax avoidance as a benefit of taking assets offshore. However, it is clear that Mr. Congdon knew that many of his clients moved their assets offshore to avoid U. S. taxation. Moreover, several prospective clients responding to the website in 2005 expressed an interest in creating offshore structures for this purpose. Mr. Congdon’s responses to these inquiries varied. In one case, he told the prospective client that tax benefits from offshore structures were an “urban legend.” In other emails, he recommended that the questioner seek the opinion of a tax professional. Mr. Congdon told the Subcommittee that this was his standard response. In response to another email from a potential client, Mr. Congdon simply ignored a question about tax issues.

When Mr. Congdon first started his business, he used a Powerpoint presentation, obtained by the Subcommittee, at two trade shows to promote EDG. Like the current website, the Powerpoint presentation promotes increased financial privacy, but in contrast to the website, the presentation focuses on the tax benefits of moving assets offshore. For example, two slides tout the additional money to be made offshore by avoiding the United States “20% Tax Rate.” Another slide declares “President Clinton vetoed the tax cut bill. Who cares? Offshore investors don’t!”

Mr. Congdon told the Subcommittee that he only delivered this presentation at two trade shows, one in New York and one in San Francisco, in 1999 and 2000, attended by fifteen to twenty people of which only two or three became clients. He stated that the presentation refers only to a specific tax-deferred investment vehicle called a Variable Universal Life Insurance policy. Though the presentation itself does not mention the Variable Universal Life Insurance policy, Mr. Congdon told the Subcommittee that he had not wanted to use such a technical term in his presentation. Mr. Congdon told the Subcommittee that he only established one such insurance policy.

From at least February 23, 2001, until July 24, 2004, EDG also promoted the tax benefits of its offshore packages online. During that time, the EDG website included an “offshore calculator.” The offshore calculator was an interactive application that compared the growth of an investment account onshore and offshore. A visitor to the website could enter a yearly rate of return, a capital gains tax rate, and the initial principal, and the offshore calculator would calculate, for onshore and offshore accounts over a twenty year period, the value in the accounts, the difference in the value, and the percentage difference. In an example given in older versions of the EDG website, an investment of $100,000, with a 15% rate of return and a 20% capital gains tax rate after 20 years onshore would be worth $964,629; the same investment offshore would be worth $1,636,654. The 70% gain in value between the offshore and onshore account is solely attributable to avoidance of the capital gains tax. The offshore calculator contained the following disclaimer:

“You may be liable for taxes on foreign investments depending on your country of citizenship and/or residency. EDG strongly recommends consulting a local tax attorney or accountant to determine any tax or legal liabilities you may incur as a result of international investing. EDG also recommends consulting a local tax attorney or accountant before opening any investment accounts in any jurisdiction.”

More recently, Mr. Congdon discussed adding a tax avoidance disclaimer to his website in a series of emails with a potential buyer of EDG. In an April 18, 2005, email to Mr. Congdon, the potential buyer wrote:

“The future for EDG is in protecting the identity of owners of assets, not tax avoidance. I think you have done a great job in maintaining some level of ‘distance’ from the underlying client’s intentions but the laws are changing quickly, and a greater firewall is required …. I must be very careful not to be associated with any conspiracies to defraud (creditors, courts, etc.) The question is, is there enough business with people doing it legitimately, for asset protection from creditors, and from internet access and identity theft? How would it hurt EDG (or possibly help?) If we placed a disclaimer right on the first page saying that if the client is interested in tax avoidance, they need to go elsewhere?”

Mr. Congdon responded, “I think some of these things would be best discussed in person rather than email – if possible. There is definitely a market for what you are proposing – probably a higher end market than I may typically service.” In the same exchange the potential buyer noted that identity theft protection “might not be the ultimate use of the client, but it gives a very logical and defendable ‘reason’ for it without having to discuss ‘hiding’ assets (or tax issues…)” On April 21, 2006, the potential buyer wrote, “I think this would be a great time to roll this [identity
theft protection] out hard as a new campaign.. It gives EDG a great ‘reason’ for why their customers want ‘hidden’ offshore accounts.” Mr. Congdon responded, “I’ve never advertized vis a vis identity theft, but it just might work.”

Mr. Congdon utilized numerous jurisdictions for establishing offshore structures for his clients, including Antigua, The Bahamas, Belize, The British Virgin Islands, Curacao, Gibraltar, Isle of Man Panama, Nevis, St. Lucia, Switzerland, and the Turks and Caicos. He encouraged clients to use more than one jurisdiction in an single offshore structure, in part to increase security and privacy. Mr. Congdon recommended different jurisdictions for different purposes. He typically used Belize, the British Virgin Islands, and Nevis for companies; he typically used The Bahamas and Nevis for trusts. Mr. Congdon stated that Nevis is the fastest jurisdiction to incorporate in, Belize is the cheapest, and the British Virgin Islands is preferred by Europeans due to its perceived legitimacy in Europe.

EDG helped establish bank accounts at Barrington Bank in Antigua, Bank of St. Lucia International in St. Lucia, First Curacao International Bank in Curacao, Maerki Baumann in Switzerland, and Close Private Bank in the Isle of Man; it helped establish brokerage accounts at Temple Securities in the Turks and Caicos Islands and Thales Securities in Panama. For setting up trusts and shell corporations, EDG typically used local offshore service companies such as the Bank of Belize in Belize, Commonwealth Trust Services in the British Virgin Islands, and IFG Trust Company in Nevis. For setting up protector trusts in the Isle of Man, Mr. Congdon typically used a company called Global Holdings International.

Both on the website and in email correspondence, Mr. Congdon sought to reassure prospective clients that regardless of the structures that EDG established for them, the client would retain full control of the funds. The website promises that “by means of an offshore trust, the founder can remove the potential liability of being the IBC’s owner without sacrificing privacy and complete control of his/her offshore corporation.”He also told potential clients that with respect to bank or brokerage accounts opened for an offshore entity, “you are the only signer on the account and the only one that will have access to the funds in the account,” and “you would be in 100% control.”

Mr. Congdon served as the point of contact between his clients and their trustees, trust protectors, and nominee directors. A client could choose to be the sole director of a shell corporation, in which case he maintained total control of the shell corporation. EDG’s clients, however, did not sacrifice control by choosing a nominee director. Mr. Congdon told the Subcommittee that he can recall only one instance in the history of his company in which a nominee director did not follow the instructions of a client. In that instance, the client had asked the nominee director to sign a sworn affidavit attesting to facts relating to a lawsuit; the director could not attest to the facts and would not commit perjury.

In the case of trustees, Mr. Congdon stated that while a trustee has formal control of a trust, to his knowledge the trustees he chose for his clients never denied a client’s request. For clients that did not want to rely on nominee trustees, Mr. Congdon helped establish trusts in which the client was the sole trustee. Clients who wanted to guarantee complete control over accounts in the name of their shell corporation could instruct the nominee director to make the client the sole signatory on the shell corporation’s accounts.

Mr. Congdon also established convenient and confidential means for clients to repatriate the assets deposited into accounts held by the offshore entities. The EDG website describes the process used. Mr. Congdon arranged for the client to become the signatory on the offshore account. Because the account was in the name of the offshore company, “transactions carried out with the account (wire transfers, debit cards, etc.) are all in the IBC’s name, not the client’s name.” But the offshore bank then “issue[d] private Visa/Mastercard debit cards that an account holder may use to withdraw funds from an ATM or to purchase goods and services directly.” Mr. Congdon confirmed to the Subcommittee that clients could use wire transfers, cashiers checks, and debit cards to repatriate funds in this fashion.

Mr. Congdon regularly reassured potential clients that they would have easy and secure access to the funds. For example, he told one client, “There are a couple of ways to bring back funds without anyone connecting them to you,” including “wir[ing] money back” into the country, “cashier’s check,” or “an anonymous ATM card.” He also recommended that this client avoid wiring money to himself, but rather send it directly to a vendor, “for example, if you are buy[ing] a car, have the money wired . . . to the car dealership.” He told another client “funds can be pulled out of offshore banks using wire transfers, bank checks, Visa/MC debit cards and cash machine cards …. As long as everything is done in the name of the offshore company, then it is private and no one (including Inland Revenue) can get any information about it.”

Mr. Congdon performed little or no due diligence on his clients. He told the Subcommittee that offshore service providers required no due diligence to set up a trust or a shell corporation. Banks required an identification, a bank reference, and a verification of address in order to establish an account. Mr. Congdon stated that he typically performed rudimentary due diligence only if the client volunteered information that raised a red flag. For instance he chose not to work with people who volunteered that they were in the pornography or adult entertainment business, and he chose not to do business with clients in countries he considered suspect, such and Iran and Cuba. Mr. Congdon stated that when a potential client volunteered that he was seeking to avoid a judgement, Mr. Congdon advised the potential client to contact a lawyer. Mr. Congdon stated that when a potential client that he had referred to a lawyer returned to EDG and wished to do business, Mr. Congdon accepted the client’s word that his actions were legal. He did not independently verify the legality with an attorney.

Mr. Congdon did not express concern about the motives of potential clients. One such client emailed Mr. Congdon, “Hi Sam, it appears that my wife has found out about my account and IBC and now wishes to control the money that is in it …. What are your suggestions regarding this situation?” Mr. Congdon replied, “Does she know the IBC name? If so, you might want to form a new company or just change the name of your existing one. We can also set up another account at a 2nd bank – that certainly wouldn’t hurt.”

“I am interested in opening an offshore account to protect my assets from my ex-wife and Uncle Sam. My ex-wife recently obtained a judgement against me, without my knowledge, and the courts ‘stole’ a substantial sum from my checking account also without my knowledge. It took me over three months and a lot of stress and legal fees to reverse the judgement and get my money back.”

“I am leaning towards simply opening a Swiss bank account …. What does the offshore corporation that you offer provide above the protections offered by Swiss banks?”

On the same day that Mr. Congdon received the above email, he replied:

“Thank you for your email. Having an offshore account won’t really protect your assets because everything is still in your personal name. What will protect you from lawsuits and such is an offshore structure. I would recommend reading the following page on the EDG website: http://www.equitydevelopers.com/offshore_101.asp. This will give you a good idea of why a structure (rather than just an account) is the best way to go.”

“Please let me know if you have any additional questions.”

On January 8, 2005, the potential client emailed Mr. Congdon with additional questions:

“The research I’ve done indicates that a Swiss bank account is protected because Switzerland has strict privacy laws. If lawsuits and creditors can’t find my account, they can’t attach it. How does an offshore structure provide more protection than that?”

On the same day, Mr. Congdon replied:

“Swiss accounts aren’t that secure (I don’t recommend them) because in order to get one you have to have an apostilled copy of a passport – what that means is that you have to tell your state government that you are presenting a copy of your passport to Switzerland. That throws whatever privacy someone might have hoped to achieve out the window. Also, having a personal account does not
protect you should you get sued and lose. Because it is a personal account you will have to list it as among your assets – it doesn’t matter what Switzerland’s laws are. Having an offshore structure in place prevents this from happening.”

The accessibility, anonymity, and low cost of online communication are a natural fit for the offshore industry, which traffics in secrecy and transactions that skirt regulatory oversight and legal requirements. With few resources, no employees, and only nine months prior experience in the industry, Samuel Congdon was able to quickly create and promote an online offshore facilitation business. EDG utilized the internet to provide hundreds of clients, many of relatively modest wealth, with the type of offshore services previously available primarily to high-net-worth individuals. Mr. Congdon rarely met his clients, did not work with their lawyers or accountants, and seldom inquired into their motives. Yet, he helped design and establish the financial structures that enabled his clients to move assets offshore, maintain control of them, obscure their ownership, and conceal their existence from family, courts, creditors, the IRS, and other government regulators. Mr.
Congdon willfully remained ignorant of his clients’ motives for moving money offshore, and in so doing, he operated in apparent compliance with current law while facilitating potentially illegal activity. There are hundreds of other online businesses just like EDG.”

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