Analytical Model

Jurisdictional Arbitrage

Exploiting gaps between legal regimes

Escalation

The Case

Start with a single question: why does a financial advisory operation based in Manhattan need entities registered in the US Virgin Islands, Delaware, New Mexico, Florida, and New York simultaneously? The answer is in the architecture itself. The USVI provides trust-company formation with minimal reporting requirements and favorable tax treatment. Delaware provides LLC opacity — no public disclosure of members or managers. New York provides the mailing address that signals legitimacy: 457 Madison Avenue. New Mexico provides a second layer of LLC privacy with near-zero filing requirements. Florida provides the residence that establishes no-state-income-tax domicile. Each jurisdiction contributes a specific feature: privacy here, tax advantage there, credibility signaling elsewhere. The five tiers aren't redundant — they're complementary. Money enters through the trust company (USVI), flows through holding LLCs (Delaware), is managed by operating entities (New York), backs real property (New York, Florida, New Mexico), and at each boundary crossing, the beneficial ownership question gets harder to answer.

Definition

The exploitation of differences between legal, regulatory, and enforcement regimes across jurisdictions — extracting value where oversight is weak and storing/protecting it where institutions are strong.

Adapted from North, Wallis & Weingast's framework and Olson's *Power and Prosperity* (2000). In the international system, actors can operate as roving bandits (extracting from jurisdictions where they have no long-term stake) while simultaneously behaving as stationary bandits (maintaining the institutional infrastructure of jurisdictions where they store wealth).

Mechanism

1
Extraction jurisdictions

Operate in places with weak enforcement, corruptible officials, or regulatory gaps (developing countries, certain offshore jurisdictions, conflicted regulatory bodies).

2
Bridge infrastructure

Shell companies, trusts, and offshore vehicles that convert "extracted" money into apparently legitimate holdings. This is the core product of the offshore industry.

3
Storage jurisdictions

Park assets in places with strong property rights, rule of law, and institutional stability (NYC real estate, London property, Swiss banks, Delaware LLCs).

4
The arbitrage

The same actor invests in maintaining the rule of law in storage jurisdictions (lobbying, political donations, philanthropy) while exploiting its absence in extraction jurisdictions.

Canonical Instances

The USVI trust architecture

Southern Trust Company incorporated in USVI (tax advantages, privacy), banking through Deutsche Bank (willing to onboard clients others rejected), beneficial ownership obscured through layered structures.

DS10 financial recordsThread 3
The five-tier corporate architecture

USVI trusts → holding companies → operating entities → bank accounts → real property. Each tier adds a layer of opacity and a different jurisdiction's protections.

Wave 11 findings
Deutsche Bank as enabler

$304M across 579 transactions. DB's willingness to process these transactions without meaningful compliance review IS the bridge infrastructure. The bank profits from providing the bridge.

Thread 3DS10

Detection Markers

Entities registered in jurisdictions with no operational presence (USVI company with no USVI employees)
Multi-jurisdictional layering where each layer adds privacy/tax benefits but no business function
Registered agents and nominee directors who serve hundreds of entities
Banking relationships maintained specifically because the bank doesn't ask questions
Temporal correlation between formation dates and legal/regulatory events

Limitations

Legitimate businesses also use multi-jurisdictional structures for valid tax planning and regulatory compliance. The distinction is whether the structure serves a business function beyond opacity.
The roving/stationary bandit framework was developed for state-level analysis. Applying it to private actors requires noting that private actors lack the coercive capacity of states — their "extraction" operates through market power, information asymmetry, and regulatory capture rather than violence.