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December 06,2017

Trustees, children have little control over Tareen’s ‘Settler Directed Trust’

Abdul Qayyum Siddiqui & Murtaza Ali Shah

ISLAMABAD/LONDON: Pakistan Tehreek-e-Insaf (PTI) leader Jahangir Khan Tareen’s offshore trust is a “settler-directed/controlled trust” in which the trustees have minimum control and his children can benefit only either 150 years or once Tareen has passed away, three experts of trusts in Switzerland and Britain have confirmed after analysing the 38-pages ‘Trust Deed’ presented in the Supreme Court of Pakistan by Tareen in his disqualification case.

Jahangir Tareen has denied that he owns £7 million Hyde House in Newbury, UK, stating that the property belongs to his children through the Trust, established by Tareen’s Shiny View Limited BVI offshore company, but latest forensic analysis establishes that Tareen is the actual owner of the house through the “Trust” in which not only his children have absolutely no control but the Trustees are also powerless while the total control and ownership firmly remains with Tareen – a fact he has denied in Pakistani courts.

In background interviews, experts have forensically dissected the offshore trust, which controls the £7 million Hyde House in Newbury, near Oxford. Experts said that Swiss trust administrators, regulated by Swiss Financial Market Supervisory Authority (FINMA), cannot provide trust management services in the UK as claimed by Tareen’s lawyer before the court that the trust deed was signed in London. Tareen’s Trust Deed clearly established that it was signed in Geneva, raising questions about links with Swiss accounts.

Experts agree that Tareen’s offshore trust is a “sham trust” in which the trustees have minimum control and schedule III and IV establishes that Tareen’s children only become beneficiary after Tareen’s death or after 150 years.

They explained that in the UK, an offshore trust is primarily aimed at UK non-domiciled high value persons like Mr Tareen. It is an arrangement entered into by a person (or group) known as the “Trustee,” and a distinct person or group of people known as the “Settler,” by which provisions are made in a binding, legal form known as the “Deed of Trust”. Trustees are “HSBC Guyerzeller Trust Company, Geneva” which set up the trust. Present Trustees are EFG Wealth Solutions, Jersey. The beneficiaries during Tareen’s lifetime are Mr and Mrs Jahangir Tareen and after his death his spouse and children.

Legally, Trust Residency is a very critical concept and the trustee of the settlement is a Trust Company resident in Switzerland. But this trust for the purposes of Her Majesty’s Revenue and Custom (HMRC) is “not resident trust in the UK” and this fact has serious tax implications for Settler (Mr Tareen), the Trustees HSBC Guyerzeller and beneficiaries (Mr and Mrs Tareen).

Forensic analysis reveals who the beneficial owner of a trust is or can be. According to the HMRC rules on anti-money laundering guidance for trusts, the beneficial owners of trusts are: any individual who is entitled to a specified vested interest in at least 25% of the capital of the trust property; persons in whose main interest the trust is set up and any individual who has control over the trust. Control means a power (whether exercisable alone, jointly with another person or with the consent of another person) under the trust instrument or by law to dispose of, advance, lend, invest, pay or apply trust property; add or remove a person as a beneficiary or to from a class of beneficiaries; appoint or remove trustees; direct, withhold consent to or veto the exercise of any of the above powers.

According to the Money Laundering Regulations 2007 of HMRC (Clause 6), the beneficial owners are the individuals (or individual) behind the trust who ultimately own or control the trust or on whose behalf a transaction or activity is being conducted and beneficial owner is one who owns or controls more than 25%, of the assets or voting rights, or who otherwise exert control, even where these interests are held indirectly.

Experts held that in the light of definition of beneficial owner and beneficiaries as defined in the UK laws, Jahangir Tareen has absolute control of the trust and he holds major interests and benefits of the trusts.

During the hearing at the Supreme Court, the court didn’t ask Jahangir Tareen to provide details of the Random Trust, a Cayman trust, settled and administered by HSBC Guyerzeller, Switzerland (Geneva) Office, which is currently being administered by EFG Wealth Solutions, Jersey. It is strange that neither lawyers nor the court asked the regulators, the Swiss Financial Market Supervisory Authority and Jersey Financial Services Commission for complete details of Random Trust, which they are bound by law to provide to courts.

The experts explained that the ‘Settler Directed Trust’ or Reserved Powers Trust legally has following features, which are all present in Mr Tareen’s offshore Trust: i.e. the general administration of the trusts; the over-arching investment strategy; monitoring performance of those investments; and decisions concerning trust income and whether distributions should be made.

Forensic analysis of Schedule III and IV deals a big blow to the defence taken by Mr Tareen in the Supreme Court. Schedule III clearly states the Life Time Beneficial Owners as Mr & Mrs. Jahangir Tareen and Schedule IV clarifies the functioning of the Trust after the life of the Settler (Jahangir Tareen) and specifies Discretionary Beneficiaries after the life of the Settler (Tareen), i.e. his wife and children. Experts said that Tareen has not gifted assets in his lifetime and that Schedule II defines the Trustee authority and responsibility after the life of the settler (Tareen).

The experts held that during his lifetime Mr Tareen (The Settler) in Schedule I has reserved the following powers of the Trust, effectively owning and controlling his assets: Investment and Real Estate Decision making; adding/removing discretionary beneficiaries; retention of power to curtail spouse's benefits.

Trust Deed (Settlement) Document’s Clause 4.1 & 4.2 show that discretionary provisions can be altered, with consent of the settler (Tareen) and the beneficiaries can be changed in Schedule IV (i.e. Discretionary Beneficiaries). They said that these clauses also establish clearly that Tareen controls the asset.

Experts said under the Clause 6 and sub-clauses, the lifetime beneficiaries can use the Capital and Income of the Trust Fund without any limitations. The trustees cannot be held liable if the Settler (Tareen) or his wife utilise all the funds in the trust which was supposedly entrusted for the benefited of the children.

Clause 6.1 (a) shows that capital and income of the fund will be held for the benefit of the Lifetime Beneficiaries mentioned in Schedule III i.e. Mr. & Mrs Tareen; Clause 6.1 (b) says that Settler retains the power to add more lifetime beneficiary; Clause 6.2 shows settler can direct the trustees to distribute all income from the trust to him or his wife; Clause 6.3 shows that Trustees have been conferred full discretionary powers by the settler to distribute whole or partial capital to the life time beneficiaries; Clause 6.4 shows that Trustees have been conferred full discretionary powers to pledge entire funds of the trust for securing financial benefit of the lifetime beneficiary; 6.4 (b) shows that Trustees can lend money (interest free loans) to the life time beneficiaries which may be written off in the event of death. All of this enables the trustees to pledge trust funds to secure financial obligations for Mr. & Mrs. Tareen.

Forensic experts said that Schedule I (Directed Investment Provisions) defines how the investments shall be managed and explains the powers reserved by the settler and establishes that the settler (Tareen) controls all investments through the investment committee.

The experts said that in Investment Committee related to Clause 2.3 & 2.5; the settler (Tareen) retains the powers to appoint/remove the Investment Committee as per powers conferred in clause 2.3 & 2.5. He himself heads the Investment Committee.

The Investment Committee is authorised to make all the investment decisions and the trustees are absolved of all its investment responsibilities. In the Residential Real Estate clause 5.2, 5.3, 5.4 and 5.5, Mr. Tareen (the settler) clearly retains all decision-making powers for real estate management.

The experts said that the ‘Trust Deed’ provisions clearly reveal that Mr Tareen’s Random trust has been established as a “Settler Directed Trust or Reserved Powers Trust”, and after the life of the settler the Trustees enjoy enactment of full discretionary powers. Such trusts are also called “As Directed Trust”, or “Settler-interested trust”.

The experts conclusively held that during his lifetime, all benefits, ownership and control of the trust are retained by Mr Tareen. They said that such trusts which are settler directed or controlled have to be declared as an asset by the settler since he has the control and is beneficial owner.

They said that using Trust for such arrangement raises the question and gives clear evidence that the trust is a "sham", since Mr Tareen, as settler, has absolute control and the arrangement purports to be a discretionary trust, but where the trustees never truly exercise that discretion. The News sent questions to Jahangir Tareen and his lawyer about the trust and his ownership and control but didn’t receive a response in over ten days.


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