International Law

TRUST COMPANIES IN THE DUTCH CARIBBEAN

By Karel.Frielink

Rendering trust services without a license is prohibited

Many international group structures include one or more Dutch Caribbean legal entities or partnerships. The main reasons for this are the internationally competitive conditions for business development in the area of corporate law, the tax system, and the well-developed professional financial services industry of the Netherlands Antilles. Trust companies are involved in setting up and maintaining such structures. On behalf of other enterprises, trust companies conduct the management of ?international companies?, i.e. companies established in the Netherlands Antilles which, however, on many occasions are (factually) controlled by persons or legal entities from outside the Netherlands Antilles (a.k.a. client companies).

Management usually involves the trust office acting as manager of the client company and providing a correspondence address and administrative support. It is often more efficient for multinational businesses to sub-contract the management of client companies to specialized trust companies rather than to employ their own staff in the Netherlands Antilles for that purpose. This management involves varying amounts of economic activity. The work is often limited to support activities for channeling capital and corporate income for a multinational enterprise, in particular financing, royalty and holding companies. In these cases, the managed client companies are also known as conduit companies.

Supervision of trust companies is dealt with in the National Ordinance on the Supervision of Trust Service Providers 2003 (?Landsverordening toezicht trustwezen?), which entered into force on 31 December 2003. The supervision is excercised by the Central Bank of the Netherlands Antilles. Between 1 January 2002 and 31 December 2003 the supervision was exercised by a separate Supervisory Board on Fiduciary Business. Before then there was no specific legislation, only (some) self-regulatory measures by the trust sector itself, in the form of their own rules of conduct concerning client acceptance.

The Netherlands Antilles had a particular interest introducing supervision for trust companies as it has a sizeable trust industry, with trust services often closely intertwined with other financial services. Introducing a licensing system coupled to supervision, was a legitmate way of protecting its good reputation and that of the financial services industry.

Rendering trust services in or from the Netherlands Antilles without a license or dispensation from the Central Bank is prohibited. According to the Ordinance, trust services include the incorporation, winding-up, and acting as managing director or local representative of client companies by residents of the Netherlands Antilles.

The aim of the Ordinance is to promote the integrity of the financial system by regulating the trust industry. The Ordinance contributes to combating the laundering of the proceeds of criminal activities (including corruption and tax fraud) through legal entities and partnerships established in the Netherlands Antilles. The services placed under supervision by the Ordinance are in line with those identified by the Financial Action Task Force (FATF) insofar as relevant to the Netherlands Antilles situation.

Karel Frielink
Attorney (Lawyer) / Partner

Full post as published by Karel's Legal Blog on June 02, 2008 (boomark / email).