Paradise Papers Ties Must Be Examined: Dutch Watchdog to Trusts (Corrected)(1)

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By Linda A. Thompson

The Dutch watchdog tasked with monitoring the country’s vast trust sector is calling on local agencies to investigate if any of their clients are connected to the recent Paradise Papers revelations.

De Nederlandsche Bank (DNB) asked resident trust agencies to verify whether any of their clients appear in the 13.4 million documents from a Bermuda-based law firm that were leaked to the International Consortium of Investigative Journalists, according to a Nov. 29 news release. A database containing the leaked documents, which revealed multinational companies’ and high-net-worth individuals’ use of complex offshore tax planning, was made accessible to the public Nov. 17.

The Dutch trust sector has been under increased scrutiny from lawmakers and transparency advocates since a June parliamentary inquiry revealed that many of the country’s 227 licensed trust agencies are failing to meet due diligence requirements under legislation aimed at curbing tax evasion and money laundering.

The Dutch watchdog wants trust agencies to examine any database hits and to investigate “why and in what context a relation occurs in the database,” and investigate if they should reevaluate their relationship, as well as if there are any other connections to the leaks.

“We expect trust agencies to report any relationship with” individuals or companies mentioned in the Paradise Papers, Corina Ruhe, a spokeswoman for DNB told Bloomberg Tax in a Nov. 29 email.

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Lawmakers are currently working on updating a 2003 law aimed at ensuring that trust agencies act fully fulfill their role as gatekeepers to the Dutch financial system. The draft law is likely be sent to the House of Representatives early next year.

As financial service providers, trust companies allow typically foreign clients to create a financial entity in the Netherlands that is often interposed in complex international set-ups designed by tax advisers and law firms. Individuals and companies based abroad can become residents of the Netherlands for tax purposes—accessing the country’s bilateral tax agreements—by having a public limited company in the Netherlands that is registered in the address of the trust agency and managed by it.

Mariet van den Berg, association manager at Holland Quaestor, the Dutch industry association for trust companies, welcomed DNB’s call in an email statement to Bloomberg Tax Nov. 29.

It is “completely logical and necessary” that trust agencies, and Holland Quaestor members in particular, verify whether their clients were mentioned in the documents, van den Berg said.

Ruhe said that the Paradise Papers trove of documents might for instance mention clients of trust agencies based in the Netherlands, and that such agencies sometimes provide services to foreign clients mentioned in the documents. Trust agencies might also appear in the documents because they manage a Dutch company that is part of an international structure that in turn comprises entities based in “Paradise countries.”

Still, being mentioned in the Paradise Papers doesn't “mean that illegal activities are being conducted,” van den Berg said. She stressed that while clients of Dutch trust agencies might "have a connection to" the Paradise Papers, this should not be interpreted to mean that a Netherlands-based trust agency was in fact involved. "Multinational corporations might for instance do business with trust agencies in multiple jurisdictions," she said.

(Tenth paragraph corrected to reflect attribution to Corina Ruhe)

To contact the reporter on this story: Linda A. Thompson in Brussels at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj in London at psukhraj@bloombergtax.com

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