In the late 1990’s, the Lalji family moved hundreds of millions of dollars in assets out of a Canada to avoid a looming tax event in 2005. It appears that the family trust was closing in on the “21-year rule” in which a trust is supposed to dispose of assets every 21 years. The purpose of the 21-year rule is to prevent trusts from indefinitely deferring capital gains taxes.
During an appearance before the Nevada Gaming Control Board, family representative, Thaddas Alston, explained the rationale behind the Lalji’s offshore structures:
“We didn’t create this structure with the idea in mind of acquiring an asset in Las Vegas. This structure was created really with legal, tax and estate planning considerations for the Lalji family, who are resident, two brothers are resident in Vancouver, West Vancouver BC, one Shiraz Lalji, is a resident in London.
Years ago they decided to do business with an ultimate control group at the top in Canada called the Lalji Family Trust. And that trust has a limited life, and at the end of that limited life, which comes up shortly, under Canadian tax laws, the assets of the trust are created as having been – treated as having been sold, with the result that any tax payable with respect to the sale has to be paid at that time.
With that in mind – and that deadline comes up in 2005. So with that event coming up in 2005, the idea was to take offshore – to actually cause a disposition of those assets before 2005, and pay the tax in Canada for estate planning and efficiency purposes, with the idea that you’d end up with a sum of funds offshore in a tax free jurisdiction with the idea that with the funds under the control of essentially a bank, trust company, you would then have a way to manage those assets, those funds for the benefit of the families generations to come. So that was the idea.
It must be three or four years ago now, Shiraz and I went to Liechtenstein and interviewed lawyers, banks, financial institutions there, trying to decide who – what institutions we felt was most appropriate to be in the, quote, control position with respect to these funds. To give you some idea of the magnitude of the funds that are involved, we thought that we’d probably end up with somewhere between $300 million and $500 million Canadian dollars after paying all the tax on these assets.
So it was very important to place these funds in the care and custody of an institution that, one, was beyond reproach in terms of its ethics, in terms of its business acumen, and in terms of its relationship with the family.
Ultimately, we came to the conclusion that Hong Kong Shanghai Bank, HSBC, would be an appropriate control group to manage these funds. There are lots of reasons we did that.
We had a long-standing relationship with HSBC. They had been a primary lender of the Canadian operating company for over 15 years, and actually, we ended up spending a substantial amount of time with the HSBC people in Zurich, which is where they are set up to manage the Liechtenstein foundations that they manage. We also looked at their experience in managing funds for other wealthy families offshore and were convinced that as these things going, HSBC would be an ideal candidate for managing these funds.”
Comments by Thaddas Alston, before the Nevada State Gaming Control Board, December 3, 2003
Read the Full Transcript from the Nevada State Gaming Control Board