International Law

With Increase in Fraud, Beware of Cayman Islands Trusts

By Rick Rein

KPMG opines that "(t)he pressure to hit targets that have become harder to meet increases the possibility of accounts manipulation and the booking of false revenues. Personal financial pressures could also lead to a wider incidence of individual insider frauds."

The ranges and uses to which a trust may be employed is still being developed, but flexibility and confidentiality are the principal advantages. The Cayman Islands has led the way in offshore countries with its innovative lelegislation which makes it a favorable destination for asset protection. In 1989, the Cayman Islands enacted the Fraudulent Dispositions Law (now the 1996 Revision). One of its effects is that a solvent settlor may create a trust on terms that the trust property cannot be claimed by his creditors if more than 6 years have passed since the property was transferred into the trust. To avoid creditors, the settlor cannot retain an interest in or powers under the trust. Thus, the trust cannot be attacked by creditors if the settlor was solvent when it was created and more than 6 years have expired since its creation.

The Cayman Islands have also adopted the use of "Star Trusts", which are trusts established for non-charitable purposes and can be an alternative to, or jointly with, provisions for persons to benefit. This form of trust also places exclusive concern over the accountability of the trustee and right to be involved in or informed about the conduct of the trust in an "enforcer", a person chosen by the settlor.

When faced with ever increasing fraud, one needs to be aware of the manner in which assets could be transferred. The ability to set aside a transfer in the Cayman Islands can be limited to how and when a trust recipient was created. Such a consideration is paramount in determining whether the victim of the fraud can achieve any recovery.

Full post as published by International Asset Recovery Law Blog on November 19, 2008 (boomark / email).