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The secretive world of offshore tax havens and the complex webs of companies they create in order to allegedly help the wealthy avoid paying tax on many of their assets will be brought firmly back into focus again this week thanks to a leak of more than 13.4m files from two offshore service providers.
The latest leak has been dubbed the “Paradise Papers”. At 1.4 terrabytes, the leak is roughly half the size of the “Panama Papers”, which sent shockwaves around the world in 2016, after an anonymous source sent private communications and files from the offices of Mossack Fonseca, a Panama based law firm, to the German newspaper Süddeutsche Zeitung.
The Panama Papers investigation lasted over a year and was worked on by journalists from all over the world as part of an International Consortium of Investigative Journalists (ICIJ). It enabled journalists to discover how the rich use offshore companies to obscure ownership of their assets – anything from cash, to property, to super yachts – by creating webs of companies in the names of friends, relatives, or business associates, and appointing proxy directors – often Mossack Fonseca members of staff – to authorise and sign off all of the company’s business decisions, and keep their own identities and actions secret.
These offshore structures are entirely legal, but are regularly accused of being used to make unexplained or unjustified loans or payments to other people or companies – often for illegal purposes, such as to avoid tax, disguise ownership, make illicit payments to people, or even to fund the activities of terrorists.
The Panama Papers disclosed details of the shareholders and directors of as many as 214,000 shell companies set up by Mossack Fonseca. Although Mossack Fonseca’s owners insisted that the activity the companies undertook were entirely legal, the revelations created scandals for politically exposed people named in the papers, such as David Cameron, and Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, as well as the Spanish Royal Family, brother-in-law of the Chinese Premier Xi Jinping and even Kojo Anna, the son of the former United Nations Secretary, and the son of the Malaysian Prime Minister Najib Razak.
Already, the “Paradise Papers” leak, shared with the same German Newspaper, which is partnering with major news publishers such as the Guardian, New York Times and the BBC, as well as ICIJ, has revealed complex offshore dealings involving members of Donald Trump’s cabinet, the tech giants Twitter and Facebook, a financier close to Canadian Prime Minister Justin Trudeau, and in the UK, a $450m offshore trust accused of being used to protect the wealth of Lord Ashcroft, and a Cayman Islands Fund that has received millions of pounds of investment from the Queen’s private estate.
Appleby is the name of the law firm at the centre of the leak; the company operates in Bermuda, the Cayman Islands, The British Virgin Islands, the Isle of Man, Jersey, Guernsey and Hong Kong. So far the company has denied any wrongdoing, saying in a statement that “we are a law firm which advises clients on legitimate and lawful ways to conduct their business. We do not tolerate illegal behaviour.”
However, journalists have spent more than year combing through the data and once again, their findings will accuse the rich and powerful of corrupt practices and deliberate tax avoidance going back as far as 7 years. London stock exchange listed Glencore is accused of using secret loans to secure lucrative mining rights in the Democratic Republic of the Congo; Nike is accused of aggressive tax evasion, and even Bono, the singer from U2 and celebrated philanthropist, has been dragged under the microscope thanks to a Lithuanian property investment.
2 football club owners in the UK; Farhad Moshiri, now Everton owner, and Russian Oligarch Alisher Usmanov, who holds a large stake in Arsenal Football Club; used Appleby to help them acquire shares in Arsenal and then for Moshiri to sell his stake and invest in Everton instead – although the money seems ultimately to have all belonged to Usmanov – who is forbidden to hold shares in 2 Premier League Clubs at the same time.
Deals like these help to explain why offshore tax havens can get so complicated and become such a grey area. Often, offshore havens can use “creative accounting” that is borderline illegal to help people or companies – often the world’s rich elite – avoid paying tax.
But these same people might argue that they are entrusting their accountants to do what good accountants do – get the best deals by exploiting any loophole’s that are available.
It is very hard, despite the evidence often seeming to be overwhelming, to actually pin crimes on the real owners and beneficiaries of offshore companies. Often, the ultimate beneficiary may have no idea how their offshore investments are being structured.
For example, about £10 million was invested into the Cayman Islands and Bermuda on the Queen’s behalf – most probably a case of a poor investment decision which the Queen would not have had any involvement in. The money was invested on her behalf by the Duchy of Lancaster, which made an offshore investment into a retailer, Brighthouse, that runs a rent-to-buy business that has been accused of exploiting the poor.
But in other cases, there are much clearer signs of financial foul play, usually involving politicians, the super wealthy, or major corporations.
The likelihood is that once the dust has settled, little will change – but governments including the UK’s, European Union and the US are pledging to do more than ever to make the world of offshore funds more transparent.
The Money Cloud View
Another major leak into the world of offshore tax havens clearly shows that we should all have concerns about how these entities are being used and whether they are easy to exploit for nefarious purposes. After all, it affects every world citizen.
On the other hand, leaks can give us a tantalising glimpse at the lives of the super-rich and famous without really helping us to understand who we should be accusing, and of what. Many would argue that they are not committing any crime, and most would be telling the truth.
The press are doing a great job of keeping the issue in the news; the more knowledge we have of the practices being employed, the better off we’ll all be.