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 M. CASE / The Dallas Morning News / 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.”

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

EDG CASE HISTORY: AN INTERNET-BASED OFFSHORE PROMOTER

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,
http://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.