Nominees disguised as bonds will not work



Nominees disguised as bonds

1. Can bonds be issued and used as a nominee?

No. A proposed structure whereby a nominee sets up a company, and issues a bond to be bought by the client. The nominee company's assets are managed by the client. Upon maturity, the bond is redeemed at the value of the company's assets.

In Summary:

  1. If the company is an investment Entity it must report on the client as bond holder as the client has a debt interest in the company
  2. If the company is a Passive NFE, the Financial Institution must consider the controlling persons of the company are nominees, and using KYC / AML in determining the source of funds, identify the cient as the beneficial ownner


2. Why this bond structure must be considered a nominee

There is no difference in function over form in the above two scenarios. Merely naming the handover of assets to a nominee as "issuance of a bond", does not change the fact that a nominee is holding the assets on behalf of the ultimate beneficial owner.

A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Thus if a bond is a debt instrument, the client purchasing the bond has a debt interest in the entity issuing the bond, and will be reported if the entity is an Investment Entity (i.e. its assets are managed by a Financial Institution).

Moreover, a bond is a fixed income product. Redemption of bond value based on the capital appreciation of underlying investments is a sham.

3. Click on the graphic for more on how the use of nominees must be reported