Euro: Hidden Money, Covert Operations (ISN)

Euro: Hidden Money, Covert Operations (ISN)
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Legal European trust practices allow multinationals to hide finances and operate covertly, Jody Ray Bennett writes for ISN Security Watch.

By Jody Ray Bennett for ISN Security Watch


In 1995, then-US President Bill Clinton signed an executive order prohibiting American companies from doing business in Iran. When the decision was made to extend Washington’s unilateral economic sanctions against Tehran, multinational companies bemoaned the move and criticized the policy, claiming that American businesses would be punished for Iran’s actions.


Speaking before the CATO Institute in 1998 as the CEO of Halliburton, Dick Cheney complained about the company’s inability to penetrate the Iranian market: “[This] has to do with efforts to develop the resources of the former Soviet Union in the Caspian Sea area. It is a region rich in oil and gas. Unfortunately, Iran is sitting right in the middle of the area and the [US] has declared […] sanctions against that country. […] Iran is not punished by this decision. There are numerous oil and gas development companies from other countries that are now aggressively pursuing opportunities to develop those resources. That development will proceed, but it will happen without American participation.”

Just a few years after Cheney’s statement, Halliburton was under investigation for doing business in Iran through one of its subsidiaries registered in the Cayman Islands, a well known tax haven utilized by businesses to hide and protect profits offshore. More recently, Halliburton’s ties to Iran were shown to involve more than just an offshore letterbox business with no employees that exploits a loophole in the US sanction policy that “allow[s] foreign subsidiaries of foreign companies to work in Iran as long as they [are] completely independent of their parent in America.”

How was Halliburton able to do business in Iran through a completely independent company with no ties to its headquarters in the US?

The process occurs through a little known practice in European trust law called Hidden Treuhand, which “submits to legal local customs in Austria, Germany, Liechtenstein, Luxemburg and Switzerland, but due to globalization, has moved beyond European borders via corporations and individuals, who put it to personal use.”

In a new book titled Hidden Treuhand: How Corporations and Individuals Hide Assets and Money, author Shelley Stark details the history of the Hidden Treuhand, how it operates, who it benefits and its implications for the global economy.

How Treuhand works

In Austria, the legal code §1002 defines a Treuhand contract as a contract coupled with a power of attorney, where someone – usually a lawyer referred to as a Treuhänder – conducts business duties in his name. According to Stark, the relationship begins with a non-public agreement between one party (referred to as a ‘Giver’) who transfers profits or assets to another (‘Taker’).

“The Giver appoints the Taker to be his direct representative in the inner relationship and controls the Taker’s actions as regards the asset with the ‘secret power of attorney.’ This inner relationship is only described in the documentation between the Taker and Giver and is created separately so that no legal relationship between the Taker and Giver can be proven. Thus, a Taker’s function as a trustee morphs into the property owner and his function as the Giver’s lawyer is hidden by virtue of the ‘secret power or attorney’,” Stark told ISN Security Watch.

“The Hidden Treuhand can exist without any public record and concluded by any two people capable of being party to a contract. It is a civil contract not regulated by law, but is based on the general principal that one has the right to make contracts as one pleases. It gives the appearance that an asset belongs to another. The true beneficiary’s identity is not publicly apparent, nor is it outwardly recognizable an asset is in a Treuhand. Thus, any kind of asset: corporate shares, financial instruments such as derivatives, stock, and bonds, bank accounts, hedge funds, real estate, even an offshore subsidiary of a publically traded company can be owned completely in secret,” said Stark.

According to Stark’s research, it is virtually impossible to apply law to a contract or business situation that is not transparent.

“Lawyers are often called upon to act as a ‘trustee’ in a hidden ‘Treuhand’. But there is no law regulating hidden Treuhand, only laws specifying that the lawyer cannot divulge any secrets pertaining to the client,” Stark said.

Stark explained how it all 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.

“Despite the secretiveness, there are nonetheless quite a few examples of hidden Treuhands causing severe concern,” Stark said, noting the case of the Bawag bank in Austria and hidden losses of €1.4 billion through Treuhands established in Liechtenstein, the Refco case, which became the 14th largest bankruptcy in America, and the UBS bank vs US attorney generals. “Germany is deeply embattled with regards to Treuhand banks accounts in Liechtenstein siphoning off millions in taxable income from Germany,” Stark added.

Security implications

As the practice is completely legal, Halliburton was able to establish a shell company in Austria called Halliburton International GmbH that contains no employees and generates no income. Because 51 percent or more is controlled by a Taker (secretly controlled by a Giver), Halliburton was able to circumvent international sanctions and conduct business in Iran legally.

“All that is needed for a US company to be completely independent of the parent company in America is to have 51 percent of the company owned by a foreigner, or someone without American citizenship. With a Hidden Treuhand embedded in the corporate structure, a Taker, who is a foreigner, can hold the 51 percent on behalf of the company. With little effort, any company could slip under that radar,” Stark said.

Thus, profits generated from these ventures cannot publicly be traced back to Halliburton’s American headquarters.

“Halliburton uses it subsidiaries in Europe, especially Austria, to move funds without transparency and also profits from the few regulations in the accounting standards. Its Austrian subsidiary receives all income from other subsidiaries (in Russia and Kazakhstan, for example), zeros out the book value, loses the paper work, and the these firms disappear from records, ostensibly hidden in other Treuhands,” Stark explained.

A recent New York Times investigative story discovered that more than $100 billion was awarded to multinational corporations for contracts while conducting business in Iran – $15 billion of which went to companies that “defied American sanctions law by making large investments that helped Iran develop its vast oil and gas reserves.”

The issue of the hidden Treuhand raises concerns about companies that are financially powerful enough to penetrate a global market and supply sensitive infrastructure, private security and intelligence for international clientele. That large financial institutions can affect or alter state-to-state relations speaks volumes about the cult of deregulation, a core feature of present day globalization.

While Stark maintains that Halliburton is just one of many large multinationals that makes use of Treuhand practices, the use of Treuhands – not only by mammoth defense contractors – raises serious questions over corporate accountability for both taxpayers and shareholders. But the implications for national security becomes even more dire, as Hidden Treuhand contracts can enable large, private companies to directly interfere and affect interstate relations. Stark recently wrote about how hidden Treuhands have the ability to fund organized crime, money laundering operations or covertly finance terrorist groups.

“The impact of hidden Treuhands for International Relations and Security is enormous. Foreign policy decisions can be rendered moot when a foreigner owns 51 percent of the subsidiary. This fortuitous loophole allows a US subsidiary to effectually not be subject to US foreign policy decisions and speaks volumes for how ineffectual sanctions really are,” Stark said.


Jody Ray Bennett is a freelance writer and academic researcher. His areas of analysis include the private military and security industry, the materialization of non-state forces and the transformation of modern warfare


Publisher

Logo International Relations and Security Network (ISN)

International Relations and Security Network (ISN)